Canadian working in US on TN

munna
New Member



Joined: 01 Aug 2008
Posts: 1

Posted: Fri Aug 01, 2008 3:35 pm

 

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Hi, I am a Canadian working in US on a TN. I have a query regarding taxes.

I have a Canadian corp that I was using to bill my clients while I was working in Canada. I filled my corporation Canadian taxes every year.
This year I moved south and am still using my Canadian corp to bill my client. I am being paid in $US. I also applied for EIN in US for this Canadian corp, clarifying with them that i would only be filing my taxes in Canada and not US. IRS while issuing the EIN said they understand that and are fine with it.

I plan to do my this year corp Canadian taxes as and when they are due next year. My question is do i also have to fill out any other form for US taxes after i am done taxes in Canada. I am a bit confused reading some threads on this forum.

Thanks

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Steven
CanuckAbroad VIP



Joined: 28 Sep 2007
Posts: 1582
Location: Calgary

Posted: Mon Aug 04, 2008 10:20 am

 

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The only thread on here that deals with this subject is: http://www.canuckabroad.com/forums/love-first-b...s-too-vt3976.html

The Canadian corp. needs to claim a tax treaty position with the US client (I think this is Form 8233 but I'm not sure for corporations). This stops them from having to do foreign withholding of 30% on Form 1042. (They can optionally file nil returns with the IRS which can help them if they ever get audited).

Then the corporation just bills the client as per usual. The corporation files Form 1120-F at the end of the financial year, and must pay US corporation tax (check the IRS website for marginal rates) on US source net income, i.e. after you have claimed any valid US expenses (usually salary) - have a look at the instructions for Form 1120-F. The corporation must also file Form 8833 to claim the tax treaty provision so it is only taxed on US-source income.

Declare any tax paid by the corporation on T2 Schedule 21 and use this to claim a foreign tax credit in Canada when the T2 is filed. Bear in mind on a CCPC the tax rate is usually far lower than in the US, so you will be unlikely to claim all the tax as a cost, it will only be a partial credit. So obviously maximise your US costs (salary) as much as you can to avoid US corporation tax.

As you are a Canadian employee of a Canadian corporation, that should be pretty much it. If you separately receive income personally in the US you may also need to file a 1040NR and a Form 8840 or 8833.

DO NOT file a regular 1040. You will seriously regret it.

The tax treaty has just changed and provisions relating to foreign contractors have also changed but I'm not sure if it matters if it's done via a corporation. However, I STRONGLY recommend phoning the IRS or talking to an accountant who is very familiar with this sort of thing prior to filling in Form 8833 and 8233. It's extremely important that the tax treaty claim is made correctly and given that the treaty has just changed it's unlikely you will find the correct information on the web as the IRS hasn't even updated publication 597 yet.

Tax treaty claims have to be made by June 15th, but I think for corporations it depends on the financial year end, so that's an advantage when using a corporation.

To be honest I'm not sure you need an EIN because you're paid in Canada, you have no US employees (might help ID the corp with the IRS on the tax return though). TN-1 is for "temporary workers" so no problem there. Probably help you to have a copy of a T1 for TN-1 status anyway.

Don't move your tax home to the US, it will affect CCPC status and lead to lots of nasty consequences as explained in the other thread.
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Steve.

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Steven
CanuckAbroad VIP



Joined: 28 Sep 2007
Posts: 1582
Location: Calgary

Posted: Mon Aug 04, 2008 9:14 pm

 

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And while I'm thinking about it, the new tax treaty defines "permanent establishment" in the US as having staff there for 183 days or more a year or doing more than 50% of the business there. If that happens the client has to do non-resident withholding as obviously the US tax burden on the company will be quite large.
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Steve.

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