Paying both full Canadian tax and U.S. tax at same time?

[Krakus]

I've got a problem and could use some help. I'm currently living in Canada, and am commuting to work in the U.S. for a U.S. company as a consultant. Up till now, I have been earning U.S. income and have had federal and state tax withheld, and my plan was to declare the U.S. income on my Canadian return and get credit for U.S. income tax paid. In addition, I would be filing a U.S. tax return as well (not sure yet whether as a resident or non-resident, as I recently moved back to Canada from the U.S., but that's a separate issue).

Now, the firm has been acquired, and the new company has informed me that in addition to withholding U.S. federal and state tax, they will also be withholding full Canadian federal and provincial tax as well from my income. So that effectively, I will be taxed twice! (Leaving very little to survive on, it would seem). They have urged me to submit a T1213 to my local tax office so that they can reduce the Canadian taxes that they withhold based on credit for U.S. taxes paid. However, processing of this form and getting approval might take a couple of months, and I'm not even sure of how to fill out the form. I don't understand why the new firm has decided that they must tax me twice, when the old firm didn't even consider Canadian taxation at all. Does this make any sense?

I am normally spending more than half a year in the U.S. for work, but am otherwise living in Canada so I am a Canadian tax resident, and have no wish to change that.

[nelsona]

They cannot withhold for both countries if you are not working in Canada.
is this company a Cdn firm?

[Krakus]

It's a U.S. firm. But in addition to consulting, it's also a big tax and audit firm and they seem to be over-eager on compliance. Their Canadian branch is instructing them to take off Canadian tax as well.

I called the CRA and they thought the idea of double taxation was ridiculous, that there was no basis for it, and that the T1213 form would be inapplicable to anything. It is fine for the firm to withhold U.S. tax and have me declare the income along with a tax credit for U.S. taxes paid under the tax treaty on my Canadian income tax return. But the firm doesn't believe me.

I've never heard of anyone being double-taxed, it makes no sense to me. If I send in the form, I'm afraid that it'll just be rejected. And I'm not even sure how to fill it out.

[nelsona]

Besides, what are they doing for SS/Medicare vs. CPP and EI.
You are not allowed to contribute to both systems for the same wage.

These guys are idiots.

I would file T1213, since you have already spoken to CRA about these dolts, and use "Other" with a copy of your paystub, expalining that your work arrangement and that you don't work in canada, but live in canada.

But make sure the braindeads you are working for do not deduct CPP and EI on your wages. that would be illegal.

[nelsona]

And the amount you would includein "other" would be your entire paystub amount.

[nelsona]

Can I ask what status you work under?

[nelsona]

Would you consider becoming a contractor? This would remove all tax obligation from them; your benefits are not really useful now that you live in canada, so you would ask for more compenation, and be allowed to claim many expenses that you cannot now.

I agree that you are a Cdn resident, and should remain so.

[Moving2Canada]

If the employee were to become a contractor, living in Canada, what are the tax/reporting requirements on the US employer? Do they simply pay full compensation to a US bank account but withhold nothing?

As a contractor living in Canada, does it matter where the work is conducted? Is it better to commute to the US or does it even matter?

Is there any way for a CDN contractor to be eligible for 401k?

[nelsona]

Moving,
The client (he wouldn't be your employer) would simply cut you a check, no withholding.

It matters a little, but as long as you are not spending more than 1/2 your days in US as a contractor, you would not owe any US tax.

No. Even a US contractor would not be eligible for 401(K). You would use your RRSP (and would of course be asking your client for more money than if you were an employee, since they are not having any benefit expenses).