Tax implications while working for U.S. based company

[solarachicky]

My son just got a job working for a U.S. based company. We live in Canada and he works from Canada. The company he works for doesn't take any deductions from his cheque. I don't want him to end up with a big tax bill next spring. How could I determine how much taxes, etc he should be taking out of the money he receives to put aside for income tax time? Does he have to pay Federal, Provincial tax and CPP?

[agnelson]

He is considered self-employed. a rule of thumb is to put aside 1/3 of his gross for tax. Once he files the first year, he will be expected to remit a quarterly amount throughout the year.

[Steven]

Yeah, get the CRA self-employed guide, they require withholding payments usually. Essentially he does all the withholding for income tax, CPP etc. himself. Usually the US company will give him a 1042-S (which is similar to a T5) with each payment, although it's not legally required with Canadians as there is no non-resident alien withholding.

The alternative is the US company sets up a Canadian payroll and does it like a Canadian company would, but obviously they won't want to do that for one-off employees.

He'll also need to get a GST number, services rendered to foreign companies are zero-rated as they're treated as an export.

The real trick to this one imx is to get them to pay in Canadian dollars, good luck with that! Otherwise you're supposed to use the exchange rate on the day the payment was made, from www.bankofcanada.ca or the CRA have an annual average they publish that you can use instead.

[agnelson]

For periodic payments the anual one published by the BoC or from their website is fine. For single payments, one should use the rate on that day.