Cdn Resident - US Citizen - Tax Implications of Work in US

I know that my current situation is a bit out of the "Canuck-Abroad" realm but was wondering if anyone could offer assistance after reading through some of the other threads on here. I am a US citizen and Cdn permanent resident living in Toronto. I love Canada and do not want to move to the US at this time but am out of work and have an opportunity to go to work for an old employer just across the border in the US.

If I were to take this job, I would still live in Toronto and commute a few days a week to work in the US and work from home the other couple of days. I am just concerned about the tax implications. As best as I can tell, I would be taxed in US on the US income with no differentiation. I would then have to file in Canada reporting this income and would get a tax credit for the amount of tax paid in the US. Assuming the tax rate is higher in Canada, I would be responsible for paying the difference here in Canada.

I would appreciate any assistance that can be provided.

Cheers!

It can get very complex if you work in two different countries because of the way the tax treaty works. In your situation it's also unusual because you are a US citizen as well.

Essentially you have to pay tax proportionally based on where the work is performed.

The first thing to work out is whether you want to be directly employed or self-employed or some combination of it. I.e. you can be directly employed in one country and self-employed in the other.

How I would do it (and I can think of several other ways) would be to register as self-employed in Canada, and be directly employed by the US employer when you do the work in the US.

So in essence you would invoice them for the work done in Canada, and they would issue you a W-2 for the work you do in the US. On your T1 you claim a foreign tax credit for whatever is on your W-2. You also have to file a tax treaty claim on Form 8833 (I think, this is a bit of an unusual situation).

You also have to file a 1040 in the US (which you already must do as a non-resident US citizen) and claim a foreign tax credit on Form 2555 for the tax paid in Canada. Don't use Form 1116 as this is for residents, which you aren't.

The other way to do it would be to register as self-employed in the US as well as Canada, but this generates more paperwork you have to do in the US, i.e. payroll withholding, etc. Or you could be directly employed in both countries but this imposes a burden on your employer as they must have a Canadian business number and do Canadian payroll withholding as essentially you are a Canadian resident employee.

You also run into the problem with the time limits, i.e. under the IRS rules you might end up being considered a resident of the US when you file, this isn't a problem provided you can convince the IRS you principally reside in Canada (regardless of how much time you spend in the US).

There is also the 90-day/$10,000 limit exemption rule, so if you are self-employed in Canada and spend less than 90 days working in the US and earn less than $10,000 while you are there, you don't have to proportionally pay tax to the US, you just work as self-employed in Canada essentially (but this is of marginal benefit in this situation, because as a US citizen you have to file a non-resident return every year anyway).

Steve,

I am very interested in the first response you gave torontofc.I am in a similar position. actually I am us citizen, and I work in montreal remotely for a company based out of alberta.and they will put me down as living in alberta and i have to pay quebec the difference BUT i still have to file in the USA and i want to know if the option you gave torontofc as registering as self employed in canada.would reduce the amount of canadian taxes. due to being self employed in canada - its like double and quebec is very high tax province.if it would reduce the tax.I can ask my employer to use my USA residence and give me an american income (which actually is a great idea as i have a house in the US which I pay for for my mother to live in and i don't appreciate the tax benefit at all for the last few years. So if i would get to file a regular tax file in the US, and appreciate the tax benefit then that is what I will ask my company to do.

You wouldn't save any money because the tax you pay is based on where you reside. If the income came from the US, you would still effectively pay the rate in Québec because you would claim a foreign tax credit for the US tax, and you would owe the difference between the lower US rate and the higher Québec rate.

If you want to save money you could move to Alberta. If you move to the US and the rate in Alberta is higher than the US rate, you could claim a foreign tax credit for the tax paid in Alberta, but as Alberta has the higher rate the foreign tax credit probably wouldn't fully cover it, so you would effectively end up paying Alberta rates as a non-resident, i.e. you file a non-resident T1.

If you move to the US and they can pay you in the US (i.e. via a US office that issues you a W-2), then yes, you would pay the effective US rate which would probably be lower.

But being self-employed in any of these situations doesn't help. The purpose of being self-employed as I explained to begin with is because his employer has no Canadian establishment, so it helps him get the job because they don't have to register in Canada, he registers himself instead. But the tax ends up being the same, it's just he pays the employer's contribution for the CPP and payroll withholding, and then invoices them for the difference.

Ok, My wonder is - if I claim residency in both Usa and canada since i have a house in both countries but i'm an american citizen, i can have my company pay me in US dollars and withold us taxes with NC as my state. But, when I do us taxes first, then can I do the difference in Canada as self employed in order to claim things like "work from home, and mortgage etc." to help reduce the tax I may owe after I claim my foreign tax credit?" Also if I am employing myself and paying myself via my us income, as a canadian self employed aren't my tax requirements lower?

You cannot claim residency in more than one place, the tax treaty prohibits it. If you did, you would be taxed twice and unable to claim a foreign tax credit.

In any event, the tax breaks you can claim as a small company are very limited and largely an illusion. For example, if you claim a deduction for a home office, then when you sell your house you have to pay capital gains tax on that portion of your house which usually far exceeds any tax break you got for having a home office. Very bad idea to claim that exemption, imo. The same usually goes for utilities like electricity and the phone, you end up saving maybe $20 a year on each one in my experience which is outweighed by all the paperwork.

Claiming tax breaks as a self-employed individual has nothing to do with trying to route it through the US anyway.

Like I said you pay tax largely on where you reside, so if you pay yourself from your US income, you end up paying taxes in Québec on the difference.

The only way to reduce your tax burden is to physically move to a lower tax jurisdiction.

Ok, All That makes sense.

But I still have large tax issues that I feel there may be a better solution to help me out but any international accountant wants to charge me 300 an hour to figure out. So if you are willing to read through maybe you can give me better advice.

1. I am US Citizen who lives in Canada.
2. I have a house in North Carolina in my name which I pay the mortgage and property tax on. My mother Lives there and claims disability insurance
3. I have a condo in Montreal which I used to live in but now I have a tenant as I wanted to buy a house with my boyfriends who has kids (that were coming to visit us from england - totally bad move of which I am now paying the price as I am asking him to move out since we are separating and i have to try to get the house put in my name etc.long stupid story but i'm almost there)
4. The tenant I have in my condo pays me 1000.00 a month, the mortgage on it is 1018 plus change but the condo fees are 101 per month so i am missing about 120 a month and not gaining income.
5. When my boyfriend moves out I will have to pay 1400 on my own unless I get a roommate.
6. The mortgage in NC is also 1000 dollars a month I pay on my own.

7. OK one last thing.If I lived and was taxed in the NC, I could claim my mother as a dependent even if i didn't live with her and that would be about 3200 federal and more in state tax credit.also I would get over 3000 back in property tax back as well.


My questions is because I live in QUEBEC I'm loosing so much money. and I can't claim any of it. And I'm just wondering why I haven't been able to be clever enough to leverage some other things.

I just woke up still thinking about the self employed thing.Maybe that is not the route to go but there must be something i'm not doing to get some tax money back.

So i have a bunch of questions and maybe some of them border on possibly not legal but It could also be a matter of just taking advantage of submitting my taxes differently. I find that since I'm single officially and have no kids and choose to live where I grew up, then QU is saying ha ha ha, we are taking your money!

So one of my biggest questions is.If I live here I know I can't claim the house in NC but a couple of accountants told me that if I was earning rental income on it then I could get back some of that property tax.Officially its true I pay the mortgage and 3 adults live there with who pay living expenses and I pay mortgage .
What if I did claim that I got rental income. how much would I have to claim to get back all 3500, I'm sure whatever it is it would be less than the amount in mortgage that I pay.
So for example. Lets say I pay 1000 a month in mortgage and get 600 a month in rent, can I claim what ever I paid in property tax.Also If I have to prove that I'm getting that in rent, I can do that, if I have my family pay me it still does not prohibit me for then turning around and giving them additional money they may need for whatever.

Next question, what if I claim NC as my resident but I don't physically move from quebec.since I have a home in both places. Can't I just on paper say my primary residence is North Carolina but I do reside in Quebec but always make sure I was not there on December 31? Since that is the law. The law states if was residing in quebec on 31 then I have to file a return.

Also what if I take your advice. which you say will not prove to reduce tax but just cause paper work and use it in this mannor:
1. I tell my company that eventually I will move to USA to be with my mother as her health is continuing to fail.so to please route my income via USA.
2. I claim all my benefits and property tax like myself and mother as a dependant and property tax.
3. I register myself as a business (Land Lord) in canada.and either.
a. Not declare my USA income and only declare the income I get in Rent from my house in NC, Roommate, and Tenant in Quebec.Which probably doesn't cover my living expenses unless I claim I'm getting more money from my family.which is fine since the amount is undetermined.
b. Register myself as either self employed, or business and claim my foriegn tax credit in USA, and also claim my rental income from my house in NC and Condo in Quebec to reduce the amount of money I would Owe to quebec? Also if I do claim my foreign tax credit will Quebec/Canada have to know what my actual US income was?

I did this claming my us employment in canada when i did my taxes and was killed because of what the US dollar was worht in quebec.but so I'm wondering why do I have to claim all my income in Quebec if I can claim seperate income in quebec, my us employer will never have to declare to quebec or canada that I'm making anything since they are only obliged to inform IRS and NC. So if i do claim self employment.its all self made income from rent.

The reason I'm looking for help in this matter is because I am burdened with caring for my sick mother, and paying her mortgage. I also myself want to live in Quebec mostly during the summer. and winters stay in NC. and I can only do that while I have this fantastic job that lets me work from anywhere.

Okay first of all, yes of course you can rent out the house in NC but any savings on property tax are an illusion as you would have to pay US income tax on the rental income which would be more than the savings on property tax. So if you're thinking of avoiding tax by routing as rent through that house, forget it, you will be in an even deeper hole.

You cannot move your residency to NC because you physically live in Québec. You would have to file a non-resident T1 every year and the CRA won't believe you because you've been filing in Québec all this time and you still have residential ties there.

Also a Canadian employer cannot pay you in the US without being registered for payroll taxes there. You would have to be registered as self-employed in the US and send them invoices.

You can't claim a foreign tax credit in Canada as a non-resident living in NC obviously. You would have to claim the foreign tax credit in the US for any taxes paid in Canada (if you moved your residency to NC), but as tax rates in Canada are higher, the US foreign tax credit wouldn't cover the full amount of tax paid.

Anyway to be honest I'm having difficulty understanding your ideas, but you are required to declare ALL income from any source to the tax authorities in the jurisdiction that you principally reside (with certain limited statutory exemptions). If you don't do that you are breaking the law.

As a self-employed person there aren't any real advantages in your situation. If you get a W-2 or T4 from some other employer you still have to put it down on your T1 as employment income, in addition to anything you earn as a self-employed person.

In addition, if you receive income from another country you usually have to file a non-resident tax return there. Certainly Canada and the US have that requirement, so you have to declare your income to both juridictions whether you claim a foreign tax credit or not. You can't hide it.

The way for you to save taxes is to move to Alberta I think, or else move to NC if your employer in Alberta is okay with that. Because either way you effectively end up paying the Alberta rates rather than Québec rates.

You might want to check with the Revenue about being able to claim for dependents who are not in the country with you, there may be a way of claiming that personal exemption (provided someone else isn't claiming it).

Thanks for the reply. Last question.if I physically move to the NC( provided my company is registered there) but i keep my residence in Quebec. and lets say I spend six months or less in Quebec.I would then be a non resident - I could declare my non resident income but only would be required to pay taxes on the rental income I earn correct? I have nobody in Alberta and it would not make sense.it would make sense to move half an hour down the road to Ontario Hawkesbury.The rate is slightly lower but the lowest is in British Columbia.but cost of living there is too high. I may just physically move to NC but check with immigration about staying in canada just long enough to keep my physical residence requirement without having to pay taxes.As a permanent resident I have to be in Canada for 2 out of 5 years.

By keep my residence i mean as a vacation home. Rent it out and just use it when I come to visit in Quebec.