Tax-help-live in canada work for u.s. company

[can_80_n]

Thanks so much, Steve. How in the world do you know the answers to all of our complex questions?

You mentioned:

...register as self-employed or set up your own company and invoice them.

What is the difference between registering as self-employed and setting up your own company to bill the "employer"? Are these 2 different scenarios or one and the same?

[Steven]

Well there are any number of different ways of setting up a company, self-employed, partnership, corporation etc. and they can all issue invoices.

If you want you can set up a CCPC, there are tax advantages to doing that (usually if you earn more than you can reasonably spend in a year).

However as a dual-citizen be careful using a CCPC as the majority of shares must be held by a Canadian resident. If you set up a CCPC and have money in it and then you decide to move back to the US, you will be hit hard by departure tax, because the corporation when you started it was worth $0 and when you leave it will be worth $whatever so your capital gain will equal $whatever and thus you will have to pay capital gains tax on the full amount.

Obviously if you're self-employed though you get whacked with income tax and both parts (employer, employee) of CPP on the full amount of whatever you make.

So either you pay the tax now or you pay the tax later!

Welcome to Canada.

Thanks so much, Steve. How in the world do you know the answers to all of our complex questions?

Sadly it's based on experience or experience of people I know. I'm a tax prisoner of Canada because of departure tax so be careful.

[tiggertiffin87]

So I have a question. Currently I'm a Canadian citizen living in the the US and telecommuting for a US company. In a couple years I want to move back to Canada and continue telecommuting for the US company. Here's my questions. Taxes: you mentioned being self-employed/starting your own company and billing the company you're working for. Would I be doing that in the US or Canada? And how? Work permit: Would I/my company need to file some kind of work permit to continue working or would me billing them be sufficient? And just to clarify, whatever I'd earn from the US company, I'd no longer have any taxes taken out and would be responsible for paying whatever the taxes would be come tax season in Canada?

[Steven]

Essentially you register as self-employed, get a business number and GST number and invoice them. The GST is zero-rated because it's classed as an export. They don't deduct any taxes, they just pay you, the CRA will probably require you to pay taxes on that money in installments as a self-employed person.

If they want they can issue a 1042-S (similar to a 1099 but for non-resident aliens) which helps you to fill in your T1. Because of the US-Canada tax treaty they're exempt from doing the 30% non-resident alien withholding tax.

If you have a look at the CRA self-employed guide it will answer most of your questions.

You *might* be required to file a protective 1040NR with the IRS if you're earning a fair bit, over $100,000 usually, but if none of the work is physically done in the US this is essentially a blank tax return you send in, right "protective" across the top and put your name, address and SSN on it and zero at the bottom. And you might have to fill in an 8833 to formally claim your exempt from NRA withholding under the tax treaty. This is basically so the IRS can effectively audit your client in the US. If you use a corporation instead of being self-employed, the corporation has to file a protective 1120-F and 8833 every year.

It does get more complex if you do any of the work in the US, the simplest way to deal with this is to just go back on their payroll and get a W-2 from them for the work you did while in the US, and file a 1040NR and claim a foreign tax credit on your T1.

If your tax home is currently the US (i.e. you file a 1040 every year) you'll have to move it out again, which requires filing a dual-status return, Form 8822 maybe a 1040-C and various other bits and pieces as explained in IRS publication 519.

Because you're a Canadian citizen working in Canada you don't need any sort of work permit.

[mwbeyl]

I am US citizen who just became new Canadian Permanent Resident. I work for a US Company and live in Canada. All of my work is done in the US. Do I just continue to have the US company take US taxes out of my check or can they pay Canadian Taxes. I read your discussion about invoicing your company back, I guess I don't understand why I would be invoicing the company for taxes that I pay? Just trying to figure it all out since this is just recently starting to happen to me and will affect my taxes for this year.

[agnelson]

What steven likley meant is invoicing your company in canada for your services not your taxes.

Generally, since you are a US citizen living in Canada, you will report all income to both tax authorities. Since the income is US-sourced, IRS gets first dibs on the tax money. On your Cdn return, you take foreign tax credits to reduce the Cdn tax to nearly zero.

The only thing that should change on your US tax is that you should no longer pay US self-employment taxes (FICA), as you are now under the CPP arrangement as a Cdn resiudnet, and should only pay one of these.

[Steven]

All of my work is done in the US.

Do you mean you physically do the work in the US? If you do then not much changes on the US end because you're a US citizen working in the US for a US company (whether it's your company or someone else's).

As a Canadian LPR you need to declare it all on your T1 as well and file for a foreign tax credit on T2209 and T2036 as the case may be so you don't get taxed twice - however as Canadian taxes are usually higher you will pay some Canadian tax on top, probably. If I understand you correctly (you're on a US payroll, not self-employed) then you do still pay FICA taxes, but FICA under the tax treaty can be claimed as a foreign tax credit as explained in the instructions for T2209. It does also matter where you're self-employed (if you are), in the US, Canada or both. If all your work is in the US then there's not much point being registered as self-employed in Canada.

[agnelson]

He says he lives in canada, which is possible if he merely travels to work in US. A Cdn resident (thus living in canada and contracting in US (as opposed to employed) is supposed to be under CPP, and not FICA, so this is a big change.

CPP will insist that he fall under their regime, under the terms of the totalization agreement.

He doesn't have to 'register' with CRA that he is self-employed: he is.

should move this question to to a tax forum: forums.serbinski.com