Canadian working for American Company in Canada

Steven,
You have been a huge help! Here is the situation. This will be the first time this particular company has employeed a Canadian.

I will be hired and payed by an American company to run their operation in Canada exclusively. Any company meetings will happen here in Canada therefor I will never have to venture into the US for business. Our main and only worry is how to handle payroll. I already have a bank account (checking) opened up the the US that they will direct deposit if I want, or they will mail me my paychecks.

They are leaving the research on this up to me. I take it the easiest way at this point is to get paid regularly using my SIN and the company taking of deductions regularly like I was just another employee. Issue me my W2 or T4 (which ever they need to, not sure yet) at the end of the year and let my accountant take care of the tax issues. I have been told that on my tax return the amount of tax i have paid in the US will be deducted from the amount I would have paid in Canada and I will probably have to pay the difference. At that time I will apply for mu ITIN if needed.

am I correct in assuming these things? If it legal to work for an American company in Canada exclusively without a visa?

Thanks again, your a saviour!

You don't need a visa. You're in Canada.

If you're issued a W-2 it does make things more complex, because they're using the US tax system to pay you. Instead of money going to your CPP, it goes to social security. You may well have to file a 1040NR, and use the foreign tax credit to reduce the tax payable in Canada, as it describes in the instructions for the T1.

A better way of doing it from the Canadian end would be to register as self-employed (get a business number), and have them issue a 1099 instead. It means you have to prepare your T4, etc. yourself but it's still less paperwork. You don't need the US benefits they offer, so it's better to get cash and put it in an RRSP/TFSA etc., because you can't use their 401(k) plan for example.

Otherwise you're going to end up with all sorts of deductions from your paycheck which are useless to you, and still have to make additional contributions in Canada.

If at some point they become a major presence in Canada, they will have to register for a payroll tax account and start issuing T4s. I'm not even sure it's legal for them to have Canadian employees without a payroll tax account in Canada, as you're actually doing the work in Canada, not the US.

A 1099 is still an IRS document and they will be looking for a US return if one is issued. It's hard (but not impossible) to get a 1099 retracted once it's been issued, trust me. Plus, the following year, the income will be subject to interim tax payments. Read up on IRS forms 1042 and 1042S paying specific attention to Exemption Code 03. "Non-U.S. source income paid to a nonresident alien is not subject to U.S. tax. Use Exemption Code 03 when entering an amount for information reporting purposes only." The company files these forms and the worker's copy goes on the Canadian return. No SSN or ITIN is needed.

Also remember that if you are self employed in Canada and invoice them that way, that you'll need a GST number and will have to charge them GST if you make over $30,000 for the year.

Steven,Perkyj

Thank you guys so Much! I have been to lawyers, accountants and everyone I know looking for answers. All I really needed was to spend more time on here and your help.

Thanks Again

Also remember that if you are self employed in Canada and invoice them that way, that you'll need a GST number and will have to charge them GST if you make over $30,000 for the year.

You have to "charge" them GST but it's zero-rated because it's classed as an export because the client is outside of Canada. You need to register, but that's actually an advantage because you claim back the GST on business-related expenses.

You're right on the 1042S, I forget the numbers of the forms. I always get the 8833 and the 8843 mixed up too.

Oh yeah, if you're going to do the self-employed thing, DON'T follow the advice accounts usually tell you, about putting down so many sq. ft. of your house as an office so you can claim a tax deduction. Any tax deduction you ever do this way is usually massively outweighed by the capital gains tax you will have to pay if you ever sell your house. You should only do this if you never plan on moving, ever.

Do I fill out the 1042S before my first pay check or when I do my tax return.

For the past few years I have done the "self employeed" 1099 route. Works fine but We are looking to buy a new house next year and banks still frown on nself employeed. Also the payroll taxes and filing gets to be a pain in the butt.

1042S and 1042 are filed by the company, not the employee. They're filed to the IRS and to the employee instead of a W2 or 1099. I'm not sure it's the right route for you, but it looks like it fits best if they can't issue a T4. Exception Code 03 means that they don't have to withhold any tax and you'll get the gross amounts in your paychecks and the form next spring to file with Rev Can. You may have to make interim payments so that Rev Can gets some money quarterly, but you may not have to do that until the second year. I can't remember how that works in Canada, but they won't want you to sit on their money all year. Good luck with all of it. Once again, please read about 1042S at the IRS website to see if it's for you, or give them a call to see if it matches your scenario. I'm just an ordinary person with an inquisitive mind!

Also the payroll taxes and filing gets to be a pain in the butt.

It's less hassle than filing a 1040NR, 8833, W-2 and all that jazz, trust me on that one! At least you only have to deal with the CRA.

Well it looks like things are finally working out. From what I have read the employer pays me like a regular employee and when I do my return next year the accountant does the rest including fill out my INIT. Because I will be doing 2 tax returns I will be able to claim money back from US and put it toward the money I will be paying in Canada. Crazy but it works.

The other way is to fill out the 1042S, from what I have learned I don't pay all the US deductions, still do two returns though. For simplisity I think Im doing option one for this year since it will only be 6 months.

Hopefully I am on the right track.