Contracting to a canadian branch of a US company and working

AUTGUY · Post by **AUTGUY** » Tue Nov 29, 2011 3:32 pm

I wanted to get some information on contracting to a Canadian branch of a US company and working in the US for some of the contract.

I currently have my own federally incorporated company in Canada and pay myself a small salary of under 10,000 dollars with the rest of my personal income paid out in dividends from the company.

If I work in the US or spend more than 183 days there what are my filing requirements for my Canadian company and what will my personal tax situation look like from the standpoint of taxation in the US given this situation?

Would I still be eligible for the small business tax credit in Canada because my contract is with the Canadian branch?

Is there a better way to undergo a long term contract in the US while remaining a Canadian resident? I do not want to dissolve my CCPC to move to the US as I am the only shareholder and director.

Any help would be greatly appreciated.

JGCA · Post by **JGCA** » Tue Nov 29, 2011 3:58 pm

Under the new rules if you spend more than 183 days in US you will be deemed resident of US which means you and your corp will need to file US pers and corp tax returns along with the related disclosure forms for foreign corp ownership etc. Too complicated for a temporary work assignment in US.

You probably will not be able to claim the SBD since the income is derived from outside Canada makes no differance that the CND branch awarded you the contract you earned it as a sub in the US not eligible.

I would not pay dividends they will be subject to witholding tax and the CND tax credit would not be applicable in US only the tax paid

YOur simplest alternative would be to work as an employee of the CND Branch and have them send you into teh US on a work visa to complete the work assignment less reporting and straight forward.

nelsona · Post by **nelsona** » Tue Nov 29, 2011 6:09 pm

There may also be 1120-F reporting simply by doing business in uS, regardless of time spent there.

JGCA · Post by **JGCA** » Tue Nov 29, 2011 6:37 pm

Of course even if he is not a resident say hes in there under the 183 days he should ALWAYS file a treaty based 1120F so in case they ever challenge his residency he has filed and teh clock starts to tick otherwise they can come back any time and he has no defence this way hes filed saying he is a non resident and pays no tax to US and all the tax to his tax home in Canada.

nelsona · Post by **nelsona** » Tue Nov 29, 2011 6:44 pm

Are you drinking too much coffee, JGCA?
Or, Did your keyboard lose the period key?
I can't even understand what you just wrote!

JGCA · Post by **JGCA** » Tue Nov 29, 2011 7:36 pm

lOOKS CLEAR TO ME, maybe you need some help.

period works fine look.......

AUTGUY · Post by **AUTGUY** » Tue Nov 29, 2011 9:37 pm

Thanks for the help gentlemen I was hoping that this would have been a good avenue but apparently not.

I think if I worked as an employee of the Canadian office I would be able to claim the overseas tax credit. This would allow me to simply be on the hook for US federal and California state income taxes.

As i understand if I keep paying into CPP I would not have to pay into the American social security. How does one deal with medicare though?

nelsona · Post by **nelsona** » Tue Nov 29, 2011 9:47 pm

If you are an employee of the american firm, you would have to pay SS/Medicare (aka FICA). But if you are the employee of the Cdn firm, you pay CPP/EI, regardless if you hav to pay US income tax or not. of You have no choice in this. You would not pay FICA under the conditions your described,

The overseas employement tax credit does not necessarily cover all your Cdn tax obligation.

Of course, if you are out of canada for more than 183 days your Cdn medicare will lapse unles you get pre-approval from province for being out-of-country for extended period.

JGCA · Post by **JGCA** » Tue Nov 29, 2011 9:49 pm

If you enter the US as an employee on the US payroll then your taxes paid will be credited to you once you file your CND tax return as a resident of Canada depending on how long you stay in the US. Forget about the Overseas tax credit you do not qualify its only on specific work sites that are pre approved it is not automatic . There is an agreement with Canada about social security and CPP you can certainly continue to pay into the CPP medicare does not follow however if you are out of the province you need to obtain medicare coverage in the US.

AUTGUY · Post by **AUTGUY** » Tue Nov 29, 2011 9:55 pm

I know I can get the overseas tax credit with the work I perform. I have done so in the past and there was no issue even with a CRA audit.
I am thinking that working through the Canadian office then is still the best option.

nelsona · Post by **nelsona** » Tue Nov 29, 2011 10:22 pm

OETC is most useful when working in a country that does not tax you. Once you are taxed in that country, the foreign tax credit is generally better.

That will be a choice you make at tax time.

Becoming a US employee is probably not advisable for such a short term job, since you would pay into FICA for nothing (and not into CPP -- JG is incorrect on that point), the employee benefits would be useless to you, and you would still be Cdn resident in the end.

JGCA · Post by **JGCA** » Tue Nov 29, 2011 10:51 pm

It all depends on how long you stay in the US this also will determine if you are eligible to pay into the CPP and what benefits you derive, I still feel the OTC is of little benefit to you even if you say you qualify.

The only other avenue is to use your corp but its too cumbersome in filing requirements, but could be done to some point if you are under teh 183 threshold.

nelsona · Post by **nelsona** » Tue Nov 29, 2011 11:00 pm

If you an employee of a US company, you pay FICA and NOT CPP. Period. No question. No choice.

None of the conditions listed on CPT20 apply to employment in US (J does not apply).
http://www.cra-arc.gc.ca/E/pbg/tf/cpt20/cpt20-10e.pdf

The poster has already said he is eligible for OETC, and has already been advised that FTC is likely better.

Please stop contradicting answers without providing reference. It is counterproductive to our efforts on this forum.

AUTGUY · Post by **AUTGUY** » Tue Nov 29, 2011 11:19 pm

So the bottom line is this.... If I work under 183 days in the US per year then I should contract with my CCPC to the Canadian branch and no US tax is owed. If I go over the 183 days per year in the US I should become an employee of the Canadian branch. I see this work going for about 1-2 years in duration with a return to Canada thereafter. I agree on not paying the SS or medicare as I will never see the benefit of it.

I see no way of keeping my CCPC and being able to become a non-resident of Canada for this duration of time. I've heard of schemes where people bring in family members as shareholders to maintain the 25% ownership rule in Canada but I feel that this would further complicate matters. I also have some other non-RRSP investments that I don't want to get rid of. To liquidate the assets and capitol in the company I feel would be suicide.

It looks like the only way to do this is to bite the bullet and pay full Canadian tax or forget about working in the US altogether for more than 183 days.

Are there any special considerations I should be aware of since California has a State income tax? Will state taxes paid be recognized under the tax treaty provisions? Will Alberta tax paid be recognized?

JGCA · Post by **JGCA** » Tue Nov 29, 2011 11:39 pm

California as you know has its own state tax, it does not need to comply to the Canada US tax treaty but state tax and prov tax will be allowed to you on your Federal tax return to the extent that that related income is taxed on the return.