Call Us: 905 268 0150 - Mail: amadan@madanca.com

Americans working in Canada and Taxes

If you’re an American working in Canada, it is very important that you read this article. There are major tax consequences that will directly affect you, especially since Canada is a very high tax country.

The 7 seven major tax implications for Americans working in Canada are discussed below.

1. Non-Resident versus Resident – Americans working in Canada and taxes

Non Residents of Canada

Non-residents of Canada are liable for Canadian tax on three types of income:

- employment income earned in Canada

- business income earned in Canada

- gains from real estate sold in Canada

 

If you are a non-resident and fall under one of the above three categories, then you are liable for tax in Canada.

Residents of Canada

As a resident of Canada, you are liable for tax on your world wide income, i.e. income from all sources in all countries.

Obviously, your preference is to be a non-resident as opposed to a resident of Canada in order to limit your Canadian tax exposure”, says Allan Madan, accountant for Americans working in Canada.

As an American, am I a resident of Canada or non resident of Canada for tax?

So how do you know if you are a resident or a non-resident of Canada for tax purposes? There are four major factors that you need to look to when determining your residency status:

 

  1. Where is your permanent home? If you’re permanent home is in Canada, then you are more likely to be a Canadian resident. On the other hand, if your permanent home is in the sunny state of Florida or somewhere else in the United States, you’re more likely to be a non-resident of Canada.
  2. Where are your spouse and children? If they are living with you in Canada, then you are more likely to be a resident of Canada than a non-resident.
  3. Where are your personal possessions kept? Personal possessions include your furniture, your clothing, appliances, financial assets, and so forth. If the majority of your personal possessions are kept in Canada, then you are more likely to be a Canadian resident than a non-resident.
  4. Are your social ties stronger to Canada or to America (United States)? If your social ties are stronger to Canada then you are more likely to be a Canadian resident as opposed to a non-resident for tax purposes.

It is important to look at the four factors as a whole when determining your residency status for Canadian tax purposes.

2. The 183 Day Rule – Americans working in Canada and taxes

 

The second major tax implication for Americans working in Canada is the 183 day rule.

The 183 day rule simply means that if you are working or living in Canada for 183 days or longer, then you are deemed to be resident of Canada. This is a bad result, as previous discussed.

As an American working in Canada, how do you get around the 183 day rule? The Canada – U.S. Tax Treaty can provide tax relief, because it overrides the 183 day rule. Within this treaty there are rules surrounding your residency, which are very similar to the four Canadian residency factors discussed earlier. If you are found to be a resident of the U.S. under the Canada – U.S Tax Treaty, then you are a non-resident of Canada, even if you were in Canada for 183 days.

3. You must file a Canadian income tax return – Americans working in Canada and taxes

If you are an American working in Canada, you have to file a Canadian income tax return by April 30th. Employment income earned in Canada from January 1st, 2011 to December 31st, 2011 must be reported on your Canadian income tax return. Any income taxes owing must also be paid by April 30th.

4. Three basic categories for filing personal tax returns in Canada

There are three basic categories that Americans working in Canada fit into. Each category has a different tax filing requirement.

Category 1

You are working for a Canadian employer and you receive a T4 slip from your Canadian employer. A T4 slip is very similar to a W2 slip. The T4 slip reports the amount of income you earned in Canada and the amount of taxes that have been deducted your pay cheques. The amounts on the T4 are reported on your Canadian personal income tax return, and you pay tax accordingly.

Category 2

You receive a W2 slip from your U.S. employer and have only worked a couple of months here in Canada. Even if you did not receive a T4 slip, you still have to pay Canadian income tax based on days you have worked in Canada.

For example, assume that you earned $100,000 dollars from your employment in the year, and this amount is reported on your W2. If, for example, 10% of all of your working days in the year were in Canada, then $10,000 of employment income must be reported on your Canadian personal income tax return.

Category 3

You receive a W2 slip from your U.S. employer and you also receive a T4 slip from your U.S. employer. In this case, taxes are being deducted from your pay cheques twice: once for U.S. payroll taxes and the second time for Canadian payroll taxes. This doesn’t leave you with much money left over to pay for your bills.

How do you avoid double-taxation? Your Chartered Accountant in Toronto should file a waiver for the reduction in your U.S. withholding taxes, i.e. Form W4 must be completed.

5. Foreign tax credits – Americans working in Canada

As a U.S. citizen or a green card holder, you are required to file a U.S. personal income tax return and report and pay tax on your world wide income. As an American working in Canada, you must also file a Canadian tax return and pay tax on the employment income earned in Canada. To avoid double taxation (i.e. tax in Canada and in the US), a foreign tax credit will be applied on your U.S. tax return to compensate you for Canadian taxes paid.

6. Social security taxes – Americans working in Canada and taxes

If you work in the US, you are probably making contributions to your 401K and are paying social security taxes. However, as an American working in Canada you will also have to contribute to the Canada Pension Plan (CPP) and to the Employment Insurance Plan (EI). Therefore, you are paying social security taxes twice, once in Canada and once in the US.

In order to avoid double taxation, you can obtain a Certificate Of Coverage from the Canada Revenue Agency, which will exempt you from paying Canadian social security taxes, also known as CPP and EI premiums.  For more information regarding social security and additional related payroll taxes, please consult our article on the tax implications for US companies expanding to Canada.

7. Foreign assets in access of $100 000

If you are a Canadian resident for tax purposes, you will be required to disclose all of your foreign assets having a total cost of more than $100,000. If you fail to disclose your foreign assets, you will be subject to significant penalties.

For more information about US or other international tax advice check out our blog on International Tax Accountant in Canada. Here you will learn ways you can save on taxes when expanding your business to Canada.

About the Author – Allan Madan

Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation . Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.

If you find this article useful, kindly +1 and follow Allan Madan on by clicking on these
two buttons.



This entry was posted in International & non-resident tax and tagged , , , . Bookmark the permalink.

About the author

is a Chartered Accountant, CPA and Tax Expert and enjoys working with business owners, individuals and entrepreneurs.

52 Responses to Americans working in Canada and Taxes

  1. Cathy says:

    I work for a US company that is placing a US citizen on a job in Canada later this month. We will take out his US taxes but as a non canadian company won’t take out canadian taxes. We will be billing our canadian client for our GST, so I think we’re good there but I’m concerned about the employee. He has worked in Canada before and the double dipping of taxes really hurt him in the past. (He has permanent home in AZ and his wife is not traveling with him so he meets the non-resident requirements based on what I learned from another video). Are there any “best practices” guidlines or information you could point me too?

    • superAmin says:

      Hi Cathy,

      Thank you for your inquiry.

      It seems that you are concerned about a fellow US employee who will be later relocating from Arizona to Canada for a job this year in a US company working in Canada.

      As per your information, he/she will be leaving his family and permanent establishment behind and coming here alone (therefore, his residential ties will lie in Arizona). Also, he is a US citizen.

      In order to avoid double payroll taxes, the US employer must collect and submit all Canadian payroll taxes (as he/she will be working in Canada) to the CRA. Afterwards, an election can be filed to have his/her US Payroll taxes reduced by the amount of payroll taxes paid in Canada.

      This person must also file a non-resident Canadian tax return and report his/her employment earnings for the year. He/she will also have to file a US tax return (1040) to report the Canadian employment income earned. To avoid double taxation, the individual will receive on his US tax return:

      - An exemption from US income tax for a certain portion of the Canadian earnings
      - A foreign tax credit for a portion of the Canadian income taxes paid

      The corporation must file a treaty based corporate tax return in Canada to avoid the following:

      -Paying income taxes in Canada

      In order for us to better assess this individuals situation and guide him as to how he could go about avoiding double taxation, we would need to be provided with further information. We will be more than glad to assist this individual in the process.

      You may contact us at our contact details noted on our website.

      Thank you!

      -The Team at Madan CA

  2. K Webs says:

    I’m an American recently arrived in Canada, trying to sort all this out. This was a really great article, thank you, the best of a dozen I just spent reading. Both the wife (canadian, but w US green card for the 10 years we lived in US) and I are self-employed. We had an S Corporation back in the US —- small, less than $100,000 always. We might be here 1-3 years, then maybe returning. Since we did the app for perm residency already, that’s done. Do you normally recommend Americans just keep the old S corporation and keep running the income through it and just pay the Canadian taxes on the incomne, 2) put it on hold, or 3) scrap it altogether and do 3a) no company or 3b) equivilent small company in Canada? You guys taking new clients? :)

    • superAmin says:

      Hi Kent,

      Thanks for your inquiry!

      It really depends on your long-term plan to stay in Canada and do business in the country as well as factors including:

      - The type of business and nature of the business income: if you can easily close and open a new business
      - Is it a well-established business with a reputable name in your area and a good list of loyal clients
      - Your plans for business expansion outside the US
      - Is the business going to be your only source of income while in Canada?

      There are three options you can consider. Which one you decide on depends on the complexity of your business and how you answered to the questions above.

      1. As an S Corp, all your net income flows to the shareholders (you and your wife in this case) and will be taxed at the individual tax brackets so this amount (approximately $100,000) will be included as partnership income on your US returns. S Corps are treated as partnerships in Canada and you can divide the income on a 50-50 basis in order to minimize Canadian taxes owing, but you will also pay tax in the US. It is true that you will receive a foreign tax credit in Canada, but that’s only after you’ve paid the US tax liability, which would limit your short-term cash flow.

      2. Turn your S Corp into a C Corp and issue dividends as you need the money. Dividends paid to you will be included on your Canadian personal income tax return. You will not be receiving a dividend tax credit on your Canadian return since the dividends are foreign.

      3. Set up a Canadian corporation and bill your clients through your Canadian corporation but keep the S Corp should you decide to move back to the US.

      Based on the information you provided, we recommend option 3 as it is the easiest way to continue with your line of business and not lose the established clientele.

      We are more than happy to assist you with your taxes during your stay in Canada as well as abroad.

      - The Team at Madan CA

  3. Elliott says:

    My wife and I are Canadian citizens (both born in Canada). our children were born in the USA. We became American citizens in May, 2011. I have landed a job in Sault Ste. Marie, Canada. We are in the process of deciding whether our family should buy a home in Sault, Michigan (where houses cost considerably less), or Sault, Ontario. I suppose American citizenship gives us the option of living in Sault Michigan. If we decide to buy in Sault Michigan, would we be liable for income tax in Canada and the United States on our Canadian earnings? Someone told us that our Canadian employer would take off a 15% witholding automatically if we decide to live in the U.S.A. Once that withholding is done, would that satify the tax burden, or would there be even more tax after that in the U.S.A, and in Canada? Of course, there are other considerations too – such as, medical, bridge crossing (and associated wait times), schools, and size differences (U.S. Sault is much smaller than Canadian Sault). However, at least for now, we would be most grateful for any tax advice in relation to our housing decision.

    • superAmin says:

      Dear Elliot,

      If you decide to reside in Sault, Michigan and commute to Canada to work, the Canadian employer will deduct taxes from your monthly paycheque much like how any American employer would deduct taxes. You would be responsible for filing a Canadian Tax Return by April 30 of the following year in order to get any tax refunds back.

      You can also have the employer contribute to your American social security program such as Medicare and instead of Canadian equivalent (Canadian Pension Plan). We can help you with this step as well as filing the Canadian Tax Return for you.

      With regards to the 15% tax withholding, it applies if you are a US subcontractor working in Canada and not as an employee.

      - Allan

  4. Guillermo says:

    Hello Allan,

    Thank you for the valuable information. Has anything changed for the 2012 tax year.

    The family and I emigrated from Canada in ’11 to Oregon and i think my taxes were done correctly for that year. This current tax filing year (’12) I would work for roughly 3 weeks in Canada and be home for a week in Oregon. This type of commuting continued for almost 10 months. On top of that I claimed Canadian EI for the last couple of months (NOV,DEC) as i was entitled to after speaking to Service Canada. Which tax category do you think i belong to best? Non-resident??

    Thanks again!

    • superAmin says:

      Hi Guillermo,

      Thank you for the positive feedback.

      Based on the information you provided me, I am not 100% sure whether you will be treated as Non-resident or Resident of Canada. Based on the 183-day rule, you may be treated as deemed resident of Canada but the tax treaty between Canada and the US may apply.

      I will require additional information to your significant ties before I can give you a definite answer. If you want to further discuss your situation, please do not hesitate to contact me.

      - Allan

  5. James Lee says:

    Can you please advise me? I need to bid for a job as an LLC for a mfg plant near Toronto; my tax rate in the US is about 30%; if I want my income after Canadian taxes to be 19,500USD per month, what amount would I need to bid/month?

    I appreciate any help that you would be willing to offer.

    Best regards and RSVP,

    JD

  6. James says:

    American working in Canada since 2 Jan 2012.

    I have heard as a non-resident, CPP and EI would be reimbursed to me since I am not eligible for either as a non-resident. Is this so?

    If it is, is that done by the CRA or is there a place on the tax form (I uses Turbo Tax online) to process this?

    Thank you!

    • superAmin says:

      Hi James,

      Unfortunately, if your employer already deducted CPP and EI contribution from your paycheque, it will be extremely difficult to get the money back. Going forward, there are certain situations in which non-residents can avoid contributing to the CPP (not EI). Please don’t hesitate to contact me if you wish to discuss this matter further.

      - Allan and his team

  7. Michael says:

    Hello,

    I am dual US/Canadian citizen that has been living in the US for the past 15 years. I have a job offer from a Canadian company that will allow me to work remotely from Florida until the end of the year. Will taxes be withheld as if I am a Canadian residing in Canada? Will I have to file a US and Canadian tax return for 2013?

    At the start of 2014 I would be moving to Ontario to work for this same company.

    Thanks,

    Mike

    • superAmin says:

      Hi Michael,

      Even if you work for a Canadian company at a satellite office, you will be considered an employee of the Canadian company and issued a T4, with taxes withheld by the company. This will be considered Canadian sourced income and will be taxable in Canada.

      -Allan and his team.

  8. Maria says:

    My son and I are Natural born U.S. Citizens. My ex-husband is as well. My son and I would like to move to Canada – British Columbia, within a year or so. While we have no other family in the U.S, I have some friends in Victoria and others that will be moving there soon. Thus, I will work for a Canadian company unless I can find employment with a U.S compnay located in Canada. My current company doesn’t have a location outside of the U.S. Other than accepting employment in British Columbia, what must I do? Should I get a work permit and Green Card? Your website indicates that the Canadian company will take out for Canadian taxes as well as money for my pension/401K (I think that is what you said). Should I ask then to take out the portion I would owe for U.S taxes? How much would the taxes be? I do not own a home in American and all of my property will be in Canada. My bank are in America, yet I can just switch them.

    Thanks,
    Maria

    • superAmin says:

      Hi Maria,

      Thank you for your question. Based on the situation you’ve described, it seems that you will establish tax residency in Canada and therefore, your employer (whether Canadian or US) will be required to withhold Canadian Employment Insurance, Canadian Pension Plan, and Canadian income tax deduction from your paycheque once you start working in Canada.

      After you file your Canadian tax return, then you will have to file a US return annually to report the Canadian income (as a US citizen, you are required to file a US tax return no matter where you are in the world). To avoid paying double tax to Canada and the US, we can help you claim foreign tax credit to reduce or even eliminate all of your US tax liability.

      - Allan and his team

  9. Heather says:

    Hi,

    We are a US based employee who just opened a Canadian subsidiary. We will be having out American employees going to perform the work. We will be up there for possibly years, but we will cycle employees through so they can still come home and visit their families here in the US. How should we handle the payroll aspect? Will the employees pass the 183 days test so they are not considered Canadian residents?

    • superAmin says:

      Hi Heather,

      Thanks for contacting me.

      Your corporation will be required to pay Canadian payroll taxes for American employees working in Canada. In addition, a T4 slip (employment income slip like a W2) must be issued by February 28 of each year.

      You should be very careful as to where the employees are being hired from – your US corporation or the Canadian subsidiary corporation.

      If your US company has its employees present in Canada for more than 183 days in the year, then it will have to pay Canadian income taxes on the profits earned from the Contract.

      Finally, if the employees are present for more than 183 days, they will be deemed residents of Canada and will have to pay Canadian income taxes on their world wide income (including income from US sources). According to the treaty between Canada and the US, they can obtain relief and file as non residents of Canada. In this case, they would file a Non Resident Personal Tax Return and pay Canadian income tax on their Canadian employment income.

      I can offer a 1 hour consultation for $200, so that I can carefully explain the issues and pitfalls you should be aware of. We can also help you with tax compliance matters on both sides of the border – US and Canadian taxes.

      Thanks,

      Allan Madan, CPA, CA
      Tel: 905-268-0150

  10. gary says:

    My questions are related to a personal service contract with a US based company. I have paid the required 15% tax for this type of contract through the company I contracted with. What type of tax number is required. Would it be a SIN or an ITN. If the tax was paid by the company contracted too, is a tax return still required. I was told previously that this was not necessary.

    Gary

    • superAmin says:

      Hi Gary,

      Thank you for contacting me. I would need a bit more information regarding your situation as the US tax laws are complex. Did you provide these services in the US? Or did you work from home in Canada? If certain conditions are met, it may be advisable for you to file the US taxes in order to have the 15% withholding taxes refunded back to you.

      Please do not hesitate to contact me.

      - Allan

  11. Sebastian says:

    Hi Allan,

    This will be my first year filing income tax but I have one major concern. I am a Canadian citizen but I was also born in the United States as my parents were there on an extended visit and therefore automatically have American citizenship. I understand that I also have to pay income tax to the IRS, I feel that this is extremely unjustifiable as I have not earned any income there. What can I do in this situation to avoid or at least minimize my taxes owed to the US?

    • superAmin says:

      Hi Sebastian,

      This is a very common issue for many Americans in Canada, many of whom like you have were simply born in the United States and share little to no attachments. Since you are an American citizen by birth right, you are legally expected to pay tax even on foreign income. I condone options relating to tax evasion as you could face prison sentence with a fine of up to $250,000 but you do have several options with possible severe repercussions. The first is the renunciation of your US citizenship which would mean that you will no longer be taxed on any future income. The only problem is that you will be hit with expatriation/exit tax, the good news for you is that if you had little to no income prior to this then the tax will not be too hefty.

      Also the United States recently introduced the Foreign Account Tax Compliance Act (FATCA), as part of a sweeping U.S. effort to crack down on offshore tax avoidance. Under the law, recently delayed to July, 2014, foreign financial institutions would be effectively shut out of U.S. financial markets if they balk at disclosing U.S. offshore accounts worth more than $50,000.

      Best Regards,

      Allan Madan and Team

  12. monkeyballzjr says:

    Hey Sebastian,

    I know quite a few people with dual citizenship, that make substantial amount of money, I’m sure if the IRS is cracking down they will be targetting those with large offshore bank accounts and not people like you.

    • Charles says:

      I have heard this is generally the case as well, there is really no sense for the IRS to go after low income people when their millionaires have offshore bank accounts worth hundreds of millions of dollars. Though the United States is controlled by corporate interest so who knows what the IRS will do next.

      • superAmin says:

        Yes this seems to be the case as well, there have been a lot of high profile cases especially with the Organization for Economic Development engaging in many tax evasion probes. A lot of foreign banks are also shunning away American millionaires in response to these developments.

  13. Thompson says:

    Hi Allan,

    I have a friend who is coming to Canada to work as a temporary foreign worker, I was just wondering what taxes they might be exempt from and which ones they have to pay. Thanks in advance.

    • superAmin says:

      Hi Thompson,

      A temporary foreign worker is subject to many of the same taxes that a non-resident and resident of Canada are. They must pay both federal and provincial income tax, and since they have access to employment insurance, worker’s compensation, healthcare, the Canadian Pension Plan, healthcare they will also have to pay into this as well. They will be eligible to apply for the CPP benefits from anywhere in the world. If the employee is a resident in a country which has entered into a tax treaty with Canada, the treaty may provide for an exemption from Canadian tax on the non-resident employee’s Canadian employment income, in limited circumstances. For example, under the Canada-U.S. Income Tax Convention, an individual who is a U.S. resident will not be taxed in Canada on the income from employment performed in Canada in a year if: the remuneration does not exceed $10,000 (Canadian)

      • Chrissy says:

        Does the tax treaty also exempt an American on that first $10,000 on taxes paid to the IRS?

        • superAmin says:

          Hi Chrissy,

          The IRS will count it towards your total taxable income so it won’t be exempt. However you should be eligible for a foreign tax credit, as to avoid double taxation in Canada and the United States.

          Best Regards,

          Allan Madan and Team

  14. Cruz says:

    I’ve heard that Americans also face withholding taxes as well, can you please expand on this point?

    • superAmin says:

      Hi Cruz,

      Regulation 105 of the Canadian Income Tax Act imposes a 15% withholding tax on fees, commissions or other amounts earned from services rendered in Canada by non-resident individuals and corporations. If these services are rendered in the province of Quebec, they will be subject to an additional Quebec withholding of 9%.

      Please consult this article for more information http://madanca.com/blog/us-companies-expanding-to-canada-tax-implications/?Itemid=334

      Best Regards,

      Allan Madan and Team

      • J.J. says:

        What sort of things are subject to this withholding tax?

        • superAmin says:

          Hi J.J.,

          The following payments are subjected to the withholding tax:

          o Dividends
          o Rentals and royalty payments;
          o Pension payments
          o Old age security pension
          o Canada Pension Plan and Quebec Pension Plan benefits
          o Retiring allowances;
          o Registered retirement savings plan payments
          o Registered retirement income fund payments
          o Annuity payments
          o Management fees

          Best Regards,

          Allan Madan and Team

  15. Lyle says:

    What if I don’t disclose a foreign asset worth more than $100,000? what kind of penalties and would it matter if it was in a commonwealth country?

    • superAmin says:

      Hi Lyle,

      The potential max penalty for inadvertently failing to disclose could be up to $10,000 and a wilful failure could cost as much as $100,000 with possible jail time. If your foreign assets are located in a Commonwealth country, it would have not make you exempt from having to disclose it since there is no tax treaty agreements that governs any type of exemptions. One possibility for Commonwealth countries especially in relation to Canada is that there a multitude of agreements in place that would enable Canada and the CRA to crack down on these assets in other Commonwealth countries.

      Best Regards,

      Allan Madan and Team

  16. Arielle says:

    Hi Allan,

    Since I have a life insurance policy originating from the United States, I head that I may be hit with a departure tax on this, is that true?

    • superAmin says:

      Hi Arielle,

      Yes this correct, any non-Canadian life insurance policy will be subject to deemed disposition.

      Best Regards,

      Allan Madan and Team

  17. Mahmoud says:

    I’ve heard discussions that there are talks about the Canadian Departure tax replacing the 877A Exit Tax Rules?

    • superAmin says:

      Hi Mahmoud,

      From what I have gathered, the American Citizens Abroad (ACA) recently made a proposal to the American Senate Finance committee regarding the amendment of the American exit tax rules. They proposed a resident-based taxation with exit tax on deemed disposition similar to Canada’s departure tax laws. Whether or not the Senate will accept these proposals is another question.

      Best Regards,

      Allan Madan and Team

      • Timothy says:

        I’ve heard this as well, and it makes much more sense to use a resident-base tax system.
        Though I think this would lead to more tax loopholes for Americans overseas.

        • superAmin says:

          I agree, resident-based departure tax much like Canada is a much fairer system in my opinion.

          Best Regards,

          Allan Madan and Team

  18. Todd says:

    Hi there.
    I’m an American citizen and back in 2013 I worked in Canada for roughly 4 weeks. I grossed about 20,000$ in those 4 weeks but only came home with around 11,000$. It’s my understanding that I can’t get taxed in both countries. Is this true? Another concern is will I end up paying more taxes toward my Canadian tax form? I’ve talked to local tax professionals but they are at a loss. Any info would be greatly appreciated. Thank u.

    Todd

    • superAmin says:

      Hi Todd,

      American citizens temporarily working in Canada must file a Non Resident Canadian Personal Tax Return. The income earned in Canada will be taxed according to Canadian income tax rates.

      As you are a US citizen, you must report and pay US income taxes on your worldwide income, including employment income earned in Canada. However, you will receive a foreign tax credit on your US personal tax return for Canadian taxes paid.

      Thanks,

      Allan Madan, CPA, CA

  19. Sarah says:

    Hi Allan,
    Great forum; thank you for the excellent information!!!

    I am self-employed and own a food concession business working county fairs in Oregon and Washington.
    Currently, I am set-up as a LLC, but file taxes under single-owner (sole proprietor).
    I would like to start selling at a few fairs in British Columbia & Alberta.
    We would spend about 25 days in Canada each summer running our business.
    Our family permanently resides in Washington State -where I am also a public School Teacher.
    I am a US Citizen and my husband is a dual citizen (born in Canada / Naturalized US).

    Our question: would we have to file (and pay income taxes) in Canada?

    Thank you very much,
    Sarah.

    • superAmin says:

      Hi Sarah,

      Profits from carrying on a business in Canada are taxable in Canada. However, pursuant to the Canada-US tax treaty, you can claim an exemption from paying income on Canadian business profits, if those profits were not earned through a Canadian permanent establishment. Generally speaking, a Canadian permanent establishment means a fixed place of business (like an office) in Canada.

      It’s not clear whether you have a fixed place of business in Canada. While you don’t have an office, your food concession stall in Canada (even if temporary) may be considered to be a ‘fixed place’ of business in Canada. This is especially true if your business is seasonal such that you only maintain a food concession stall in the summertime, for example.

      In order to determine whether a PE exists in your case, I would need to perform additional research.

      Thank You,

      Allan Madan, CPA, CA
      Tel: 905-268-0150

  20. Kendrick says:

    Hi, thank you for the thorough explanation.

    I am an American living in Canada physically for the whole year but working for a USA based company. I telecommute for work.

    I get W2 from my USA company.
    I am single. My only ties to USA are my investment properties and the company I work for.
    I physically reside in Canada renting an apartment doing my work remotely.

    My understanding is that given those circumstance. I am considered a Resident of Canada and required to pay taxes to Canada first and then then deduct those Canada tax as credits for my USA filing. Is this correct?

    • superAmin says:

      Hi Kendrick,

      As a US citizen you are required to report your world wide income (including income earned in Canada) on your US tax return. You will receive a foreign tax credit for Canadian taxes paid. So, yes, you are correct.

      Since you were present in Canada for more than 183 days in 2013, you will be considered a deemed resident of Canada too. However, if your family, residential, economic and personal ties are stronger to the US than Canada, you can argue that you are not a resident of Canada pursuant to the Canada-US tax treaty. Both deemed residents and non residents of Canada are required to pay Canadian income taxes on employment income earned in Canada. Deemed residents of Canada are required to pay Canadian income taxes on their world wide income.

      Thanks,

      Allan Madan, CPA, CA & Team
      Tel: 905-268-0150

  21. Bhushan Chauhan says:

    Hi, we are a Canadian Corp. We have a few American employees working almost exclusively in USA but appx 5% of the time they come to Canada to work. My ques are:

    1. Do we have to deduct EI, CPP and Tax from their pay checks?
    2. I am told that we must keep track of the time they are in Canada to work and deduct EI, CPP, and Tax for the period they are in Canada. In other words, Americans must pay tax, EI, and CPP on the income they earned in Canada? How much EI, CPP, and tax we must deduct from their pay checks, if we must?
    3. To me this does not make sense to deduct CPP and EI especially when they will never collect EI or CPP from Canada. As far as the tax is concerned, they will get a offset tax credit at the end of the year so they are not double taxed, in Canada and then again in USA.
    4. Do Americans have to apply for a SIN number? In my understanding, only Canadian residents (citizens and immigrants) require SIN numbers; am I correct?

    PLEASE HELP ME UNDERSTAND this issue. I look forward to your reply.
    Best Regards, Bhushan

    • superAmin says:

      Hi Bushan,

      1. Yes, you must deduct CPP and EI from their cheques, unless they have a ‘certificate of coverage’ completed by the employer.
      2. Yes, you must also deduct income taxes in addition to CPP and EI. The amount to deduct is based on the number of days in each pay period that they worked in Canada. You can use the CRA’s online payroll calculator to determine payroll taxes to deduct.
      3. They are entitled to CPP when they retire (to the extent that they contributed), so it’s not a total loss.
      4. Americans working in Canada should apply for an Individual Tax Number from the CRA.

      Thanks,

      Allan Madan, CPA, CA
      Tel: 905-268-0150

  22. Kathy says:

    Hi Allan! I thank you also for such a great page and all the help. I have recently come into a situation for helping someone and some questions linger. He is an American citizen, working in Canada on a cycle of 14 days here and 7 home. He has registered for GST and has done his submission for 2012 and is currently trying to figure it out for 2013. He didn’t seek the advice of a bookkeeper/accountant before and apparently ‘messed up the return’, according to CRA. They of course, want him to ‘fix the problem’ but he has no idea where he went wrong. I was recommended to him and met with him recently. He has a T4 type slip but it is T4 with a few more numbers/letters. I didn’t make a note of it, didn’t think it relevant at the time. We used the income stated on that T slip as his income and then I showed him how to enter his GST’s from there. Now another bookkeeper friend is telling me that since it was a T4, that he supposedly isn’t supposed to be claiming GST. I don’t understand how CRA would set him up for GST if he was working as an employee, paying source deductions, etc. I know he is working as a contractor, not employee. I didn’t look closely at the T slip but I don’t believe he is paying any payroll deductions. Could you shed some light on this for me? I’m concerned now that I have mis-led this person. I hope I have explained this reasonably well for you. And I thank you sincerely for your help.

    • superAmin says:

      Hi Kathy,

      If he received a T4 slip and is really an employee, he should not be collecting GST nor HST on his employment income. In this case, the GST/HST account may have been created in error.

      Thanks,

      Allan Madan, CPA, CA
      Tel: 905-268-0150

  23. John says:

    Hi Allan, I am a US resident(no green card holder-resident alient i guess), and lived in america past few years. I was filing 1040 which made sense. In November of 2013, I left US and went to Canada(new job). Will i be considered a dual citizen for 2013? Do I need a 1040 and 1040NR? I was issued a T4 from November to December in 2013. Would I have to report this? i heard about the foreign earned income exclusion, would this apply?

    My understanding is I could either do a normal 1040, include the T4, and do the foreign earned income exclusion or I could do the dual status, and include on the 1040 the US source, and nothing on the 1040NR. What would be better?

    • superAmin says:

      Hi John,

      I will need more information to answer your question properly. Generally speaking, US citizens and Green Card holders are required to file a US tax return and pay US taxes on overseas income, even if they don’t live in the US anymore. The same applies for long term US residents. If you do not possess a green card or US citizenship and are not a US long term resident, then you may be considered a non resident for US purposes after your departure. Non residents of the US do not have to file a US tax return if they have no US based income.

      In the year of departure, you may be considered as a tax resident of both the US and Canada. In this case, you would be liable for income taxes in both countries – Canada and the US. To reduce double taxation, consider claiming a foreign tax credit on your US return for Canadian taxes paid. You could also claim the foreign earned income exclusion, if you meet all of the conditions. You will still need to file a Canadian tax return and pay Canadian income taxes on your Canadian employment income.

      Thanks,

      Allan Madan, CPA, CA
      Tel: 905-268-0150

Leave a Reply

Your name and email address will not be published. Required fields are marked *

*

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>