Tips for Americans providing services in Canada.

Are you an American citizens performing services in Canada? Are you confused about your Canadian tax obligations? If the answer to these questions is yes, this blog is for you!

Payments made to non-residents of Canada, including Americans, for services performed in Canada are subject to a withholding tax of 15%. For example, if you are an American independent contractor performing services for a Canadian customer on Canadian soil, then 15% withholding taxes will be applied to your paycheck. Fortunately, you can recover the withholding taxes paid by filing a non-resident tax return with the CRA. This is true whether you are operating as a sole proprietor, corporation, or LLC. The non-resident tax return should be filed after your year-end with the CRA.

If you just can’t wait until the end of the year to get back your withholding taxes, there is a solution. By filing a regulation 105 waiver with the CRA, you can immediately reduce withholding taxes from your paycheck. This will increase your cash inflows right away.

There is one catch if you are physically present in Canada for more than six months in the year in connection with the same Canadian contract, then any profits that you derive from that contract will be taxable to you in the year. In this particular case, you will need to file a Canadian tax return. Taxes previously withheld from your paychecks will reduce your Canadian tax liability upon filing.

So Here’s the Tip:
Before entering into a contract with a Canadian customer, contact your accountant to avoid nasty tax surprises.

ABOUT THE AUTHOR

ALLAN MADAN

CPA, CA

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.

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