US contract and deduction of work expenses

[Turpentine]

I have a full-time job in Qc and it is my tax home. I got a contract in NYC in 2008 and received a W-2 for it. I was commuting back and forth from Qc to NYC, every other week for 2 days, on a TN visa. In the contract with my US employer it was specified that a travel allowance would be added to my salary to cover for airfares, meals, lodging, taxis, etc. necessary for carrying out my contract.

I have done my US taxes, and there it's pretty simple, I simply claimed all those expenses as employee expenses, and that was it. In Canada, however, it's been a nightmare to figuring out what's going on. There is the option to deduct employee expenses, but I cannot find any mention of the possibility to deduct airfares, for example. I am utterly confused, given that in the end it was a big chunk of my travel expenses. The problem is that the examples given in the CRA publications seem to all apply to employees of Canadian corporations, not people in my situation. What am I supposed to do? More specifically:

* Can I simply include airfares in "Motor Vehicle Expenses" or "Other expenses", or am I just not allowed to claim airfares?
* Would that change if I was to report this income as self-employment income? Am I even allowed to do that in Canada, given I received a W-2 instead of a 1099?
* When claiming the foreign tax credit, there seems to be a mention in the tax treaty that I can also claim the social security contributions made in the US (but the language used is so convoluted...). Is that so? What about medicare contributions?

Thanks a lot for your help, I've been trying to figure out all this for the past 48 hours!!!

[Steven]

Cost of travel to and from work is generally not deductible either in the US or Canada (there is a new deduction for using public transport in Canada but that's obviously not relevant here) you have to recover it via your salary or whatever you're charging them. From the sounds of it all your other travel was in the US, so you figure the deduction for that as explained in IRS publication 529 and the 1040NR instructions.

As you got a W-2, that means you were directly employed. So what you do is fill in 1040NR, work everything out, pay any tax you owe (from the sounds of it probably none as it was withheld). If it's complicated it's probably a good idea to wait for your notice of assessment and see if you get a refund or owe money before trying to do your T1.

To do your T1 you claim a foreign tax credit using T2209 and T2036. You can either convert using the CRA flat rate or the dates on the days you were paid using the rates from www.bankofcanada.ca (so you can work it out to your advantage).

You can claim FICA taxes as a foreign tax credit as per the tax treaty. There is a totalization agreement between the US and Canada which is explained at www.ssa.gov Essentially you receive the total of your contributions to CPP and social security in the country where you claim them when you are eligible.

You claim the medicare contributions as part of the foreign tax credit, however you don't benefit from medicare ever, unless you move to the US permanently at some point and live there long enough.

You must also file a Form 8840 with your 1040NR in the US.

[Turpentine]

Thanks Steve for the very helpful reply. I am a little confused however about not being allowed to claim my cost of travel on my US return. If I read Pub. 511 from the IRS (Business Travel Expenses), it says that:

"You are traveling away from home if your duties require you to be away from the general area of your tax home for a period substantially longer than an ordinary day's work, and you need to get sleep or rest to meet the demands of your work while away.

Generally, your tax home is the entire city or general area where your main place of business or work is located, regardless of where you maintain your family home. [...] In determining which is your main place of business, take into account the length of time you are normally required to spend at each location for business purposes, the degree of business activity in each area, and the relative significance of the financial return from each area. However, the most important consideration is the length of time spent at each location."

I believe in my case my tax home is Qc: that is where I have my main job and I spent 95% of my working days in a given year. The US employment is only a temporary contract. So in that case, my understanding is that I can deduct travel expenses on my 1040NR. Am I missing something? Now, in the end, I guess it does not matter that much: as long as I cannot find a way to do those same deductions on my T1, then it's only a tax transfer from the IRS to the CRA... Too bad I got a W-2, that rules out the possibility of classifying this contract work as self-employment. This way I would have had more leeway in deducting business expenses in Canada...

Thanks again for everything!

[Steven]

The problem is that your "tax home" for this purpose is Canada, in that example when they say "tax home" they mean another US jurisdiction. Assuming you're eligible because New York is not your tax home then you still can't claim because your tax home is not in the US. You would have to claim in Canada. http://www.cra-arc.gc.ca/E/pub/tg/t4002/t4002-08e.pdf FWIW. I'd give the CRA a call though.

I can't see why getting a W-2 makes much difference, either way it's employment income and you're entitled to any deduction.

[Turpentine]

Ok, I see what you mean. So the document you gave me the link to refers to business or professional income, which disqualifies me since I got employment income instead, right? In the end, if I understand right, there is pretty much no way for me to claim expenses necessary to my employment in NY.

Thanks

[Steven]

Bit of a badly named document, but you might be able to, like I said, ask the CRA.