How to work for US company in Canada?

Hi there!

I've got an interesting situation that I could use some advice on. But first, a little bit of background:

- I left Canada in 2002 to work for a software company in California.
- Haven't formally told the Canadian gov't that I've left
- Don't really have any ties or assests in Canada 'cept a small GIC.
- Just got married to another Canadian last month in Canada (both of us work for the same US company. she's in the same situation as me).
- I'm in the final stages of getting my green card (maybe a year away).

We decided that we want to move back home to start a family.

My dilemma is that I reeeallly like my job in SoCal. Right now, I'm trying to build a case to my HR department that I can still stay employed with them but live in Canada.

Does anyone have any experience with this?

I think the biggest concerns they have are the tax and visa implications. If anyone can point me to some resources that'd be awesome.

Thanks again for giving me some ammo!

Cheers!

By "haven't formally told the Canadian Govt. that I've left" I take it you still file taxes in Canada? I.e. you file a 1040NR in the US rather than a 1040 every year and claim a foreign tax credit in Canada?

If you're filing a 1040 (i.e. your tax home is the US) you're treated as a resident alien by the IRS, and if you are in the process of getting LPR status you will basically be screwed forever if you give that up and move your tax home back to Canada, if you want at some point to move back to the US. You could still file taxes in the US and claim to be a non-resident in Canada, but it's hard to pull that off if you're a Canadian citizen and you have only temporary status in the US, the CRA won't believe you.

If you're moving permanently back to Canada then it's not as big an issue, and it's a pretty trivial issue if you currently file 1040NR and you abandon your LPR application.

How it works for non-resident employees is that you file a 1040NR and an 8833 every year to report your income to the IRS and claim a tax treaty position. In Canada you claim a foreign tax credit for the US income tax. (You benefit from the social security tax under the totalization agreement.)

But if you're currently filing 1040 you need to move your tax home back to Canada first (which is fairly complicated).

The tax situation for the employer can be quite complicated, IRS publication 515 explains how to do it. If none of the work is physically done in the US then it isn't too difficult, have a read of pages 22-26 of that publication.

Generally though it's simpler to be self-employed in Canada and be an independent contractor, you file Form 8233 with them every year to claim a tax treaty provision so they don't have to do non-resident withholding, you send them invoices, they pay you, you declare it every year on your tax returns, i.e. 1040NR/8833 and your T1. They may have to file Form 1042, IRS gives me vague answers on that one, I think they like all employers to file them if they have non-resident employees even if it's a nil return but if there is no actual withholding required the employer doesn't have to.

Forms 8233 and 8833 are pretty difficult to fill out and the tax treaty changed this year so all the instructions are out-of-date (if in fact you could understand them - I've never been able to). Really you need to talk direct to the IRS on how to fill out those forms, or a very good accountant who is really up-to-date on it. Form 8233 will probably be changed to reflect the new definitions in the treaty, but I haven't seen the new one yet.

Have a read of IRS publication 519 also.

You can visit the US as a regular B-1 business visitor to have meetings with them, that isn't a big deal.

Actually an addendum now that I'm more awake: if you read publication 515 there is a very misleading paragraph that says:

Services performed outside the United States.
Compensation paid to a nonresident alien (other than a resident of Puerto Rico, discussed later) for services performed outside the United States is not considered wages and is not subject to withholding.

Bear in mind what this actually means is that your employer must comply with the tax laws of the country in which the work is performed, because you are directly employed by them. I.e. they would have to get a Canadian business number and do payroll withholding, etc.

This is why in this situation most people either become self-employed or set up a corporation, etc. and do all the Canadian stuff themselves so the employer/client doesn't have to.

Steve:

You've provided some great information here. I am in the position right now that I am being contracted by a company in California to do work that will all be done in Canada and sent to them electronically (writing and editing). What do I need to fill out, sign, etc. beyond just claiming the income in line 104 of my T-1? There is talk of a W-9 and I'm not really comfortable with that. Please advise, if you can. Thanks!

W-9 isn't relevant as you don't live in the US and the work isn't performed there and you're considered a non-resident alien anyway. If you're registered as self-employed, you just invoice them and they pay the invoices, basically, it's your responsibility to do the withholding. GST is zero-rated in this situation.

Like I said above, you may need to file 1040NR and 8833 for informational purposes (although the 1040NR is basically blank if all the work is done in Canada, or if you only earn a few thousand dollars in the US), these are called "protective" returns. At one point the IRS were telling me this was necessary but I've spoken to agents since then who sounded much less interested in it. It basically boils down to what your income is from the US, if it's over $100,000 then you need to do it.

You may need to inform them of your tax treaty status on Form 8233 as well, but this is more about if you are an independent contractor who works for them in the US, which may never happen in your situation from the sounds of it. This is filed with the client, not the IRS.

If you're using a corporation then it may need to file a protective 1120-F and 8833.

Your client (employer) may want to report the payments on forms 1042 and 1042-S, but as there's no tax liability, it's optional.

I have to say I get the impression when I talk to the IRS they're not that bothered about Canadians in most situations because the tax treaty removes the withholding taxes (except in certain situations, such as Article X), so it's all about filing a lot of paperwork they'll probably never look at unless they audit your US client. They only get excited about it if large amounts of money are involved or if you actually owe them money.

The other forms you may need to think about are W-7 which is the application for an ITIN, which you will need for 1040NR, and W-8BEN, which you file with the bank in the US if your payments go to a bank there, this is also a reason to file for an ITIN although strictly it's not necessary merely for a bank account.

If your corporation is filing 1120-F you may want to get it an EIN, which you can apply for at irs.gov