How to Obtain Refund of Canadian Withholding

bob16325 · Post by **bob16325** » Fri Sep 18, 2015 8:53 am

I am a US consultant that does occassional work in Canada. My most recent client withheld 15% of my fees, telling me that I'll be able to get them refunded. From what I can tell, I'll have to file a Canadian tax return to get this refund.

1. Is this correct? Do I have to file a Canadian Tax Return?
2. I have no idea which forms to use, or how to fill in the return. Any advise?

Thanks,

nelsona · Post by **nelsona** » Sat Sep 19, 2015 11:14 pm

1. of course. That money was remitted to the govt. You can only get this backat tax time.
2. A Cdn tax return for non-residents.

bob16325 · Post by **bob16325** » Sun Sep 20, 2015 7:07 am

Thank you for your response, but when I googled "Canadian Return for Non-Residents," I was taken to the Canadian Government website that provided pages and pages of information that a tax accountant would have to look at in order to understand. I have already spent about 8 hours looking into this issue and am frustrated. WHO CAN HELP ME. I'll pay!

nelsona · Post by **nelsona** » Sun Sep 20, 2015 10:42 am

Its not that complicated. Its a tax return. You will get a form from your client. and you will input. Nothing to worry about at this time.

bob16325 · Post by **bob16325** » Sun Sep 20, 2015 10:51 am

Sorry, but it is more complicated that it might seem. I'm trying to keep it sinple for this forum. I've been doing business in Canada since 1985 and have never received any kind of form from a Canadian client after they have taken out the 15%. Therefore, I have never gotten anything back.

I am in the process of deciding whether or not to increase rates because of this -- increase them by 15%. I need to know how all this works now so I'll know whether I'll ever see this money again.

Unless I've missed something big since 1985, I'll never see this money again.

What specific form will I have to fill-in? What's the name of the forum (so I can download it and look at it?)

nelsona · Post by **nelsona** » Sun Sep 20, 2015 8:11 pm

So, how have you been claiming the Cdn tax on your US return?

Your telling us that you have just accepted this 15% tax and then paid US tax on top of it?

It's a T1 form.
Given that this has been going on for 30 years, pardon if I'm not in a rush to look at the CRA website for it, but how about

http://www.cra-arc.gc.ca/E/pbg/tf/5013-r/README.html

But I would be paying for an accountant, as taxes don't seem to be your strong suit.

bob16325 · Post by **bob16325** » Fri Sep 25, 2015 6:51 am

For others reading this thread, I thought I'd let everyone know what I found out by calling a Canadian Tax Accountant.

1. Although I am incorporated and am a US consultant that provides a service to Canadian companies, I am NOT required to fill-in a T-1 or T-2. The T-1 is for individuals, and the T-2 is for corporations that are IN BUSINESS in Canada. Since I am not in business in Canada, but only provide an occasional service to businesses in Canada, those clients are required to withhold 15% of the fees I charge.

2. When I file my US corporate tax returns, I can claim a "Foreign Tax Credit" of this 15%, which can be used to offset any US tax liabilities.

So, in effect, I'll get back the 15%.

nelsona · Post by **nelsona** » Fri Sep 25, 2015 12:43 pm

Not quite true.

If you are only providing occasional service, then you shuld be getting back all of that 15%, because by treaty, you are not taxable in Canada on this income.

And if you are taxable, by, say, being in Canada for more than 183 days in the yar, then the 15% is not your final tax bill. You would need to fiel a T1 (since this is considered self-employed income) and settle up for the year.

You might find that getting all the 15% back is better than getting ga credit on your US return, because you might not get all the rredit back, if your avg tax rate isn't 15%.

Plus ypu have the issue of what ypu can collect from the past.

Canad allows you to gp back 10 years to correct taxes, IRS only lets you go back 3.

Ypur clients issue you an NR form every year. You attachÃ© that to a T1, with 3 lines linlled out amdget it all back.

bob16325 · Post by **bob16325** » Fri Sep 25, 2015 1:34 pm

I was told that I could not file a T1 because my invoice and their payment was to my corporation. I was told the T1 was for personal, or self-employed income but not for corporate income.

You have criticized me for not being more tax savvy, but for goodness sake, I get different answers depending on who I am talking to.

So, in your opinion, can I file a T1 if I'm a US S-CORP?

Thank you

nelsona · Post by **nelsona** » Fri Sep 25, 2015 3:00 pm

The same applies to corporate income. 15% is withheld, and a tax return is filed (a T2) to determine the final tax bill, which in my opinion, by treaty, should be zero.
See: http://www.cra-arc.gc.ca/E/pub/tg/rc4445/rc4445-14e.pdf
Recipientsâ€™ filing requirements
Non-residents who have carried on business in Canada or
who have been employed in Canada usually have to pay
Canadian tax on the income from such activities. These
non-residents have to file a Canadian income tax return to
calculate their tax liability or to get a refund of any excess
amounts that were withheld.
(a) For individuals, a T1 General â€“ Income Tax and Benefit
Return for the province or territory where the
individual earned the income must be filed by April 30
of the following year, or by June 15 of the following
year if the individual is carrying on business in Canada.
In either case, if the individual has a balance owing for
the year, it must be paid on or before April 30 of the
following year.
(b) For a corporation, a T2 Corporation Income Tax Return
must be filed within six months after the end of each tax
year. The tax year of a corporation is its fiscal period.

How is the income being reported in US? And I'm quite sure your clients are issuing you NR-4 slips.

nelsona · Post by **nelsona** » Fri Sep 25, 2015 3:01 pm

byw, you never said you were being paid corp-to-corp.

nelsona · Post by **nelsona** » Fri Sep 25, 2015 3:01 pm

You are also an employee of your corporation, and could be paid as such.

nelsona · Post by **nelsona** » Fri Sep 25, 2015 3:12 pm

http://www.cra-arc.gc.ca/E/pub/tg/t4012/t4012-14e.pdf

Non-resident corporations
A non-resident corporation has to file a T2 return if, at any
time in the year, one of the following situations applies:
â– it carried on business in Canada;

This requirement applies even if any profits or gain(s)
realized are claimed by the corporation to be exempt from
Canadian income tax due to the provisions of a tax treaty.

There are a whole set of obligations for a corp doing business in Canada (schedule 91, and regulation 105 exemptions come to mind), which in your case will result in either no withholding at all, or a refund of the withholding, WHICH IS WHAT YOU WERE ASKING IN THE FIRST PLACE.

Your conducting a business in canada for 30 years?!