withholding tax requirement

queenwest · Post by **queenwest** » Fri May 17, 2013 12:25 pm

Hello, I am a consultant working in the US on a TN work visa. My company which is my own is incorporated in Ontario. My client pays my company directly and currently does not with hold any taxes. My company files Canadian taxes. Now my client is telling me that they need to start with holding taxes on my payments. Is this correct? What is the withholding tax rate and how does that impact my filing in Canada? ( ie - will I be able to get the tax back when I file in Canada?) I am a resident of Canada since I fly occasionally to the US to visit clients and I file all my taxes including personal in Canada. Any advice would be appreciated.

Thanks

nelsona · Post by **nelsona** » Fri May 17, 2013 4:42 pm

They only need to withhold if you don't provide them with an exemption form.

Give them a filled-out IRS Form 8233. You are exempyt from US taxation becasue you are a non-resident and are not establishinga afixed base in US (mauinly by not spending more than half your time there in any 365-day period.

But, even if some tax was mistakenly withheld, you would file 1040NR at year end, and claim it back. It would noyt be claimed back on your Cdn return.

queenwest · Post by **queenwest** » Fri May 17, 2013 4:56 pm

Thank you for your reply. I understand that I as an individual is exempt but what about my corporation? The company is my own company which is incorporated in Canada and I am the sole employee. The client pays my canadian corporation (corp to corp). Does my corporation have to file anything in the US due to the "Fifth Protocol"? So far I only file canadian corp tax in Canada.

Many thanks in advance.

nelsona · Post by **nelsona** » Fri May 17, 2013 9:35 pm

A firn is nver required to withhold for another corp.

You will probably want to fike an 120-F for your corp as protective measure.

JGCA · Post by **JGCA** » Tue May 21, 2013 5:29 pm

This is true, however firms do withold tax even if they are paying other companies an exemption applies however under the treaty not to withold and as Nelsona said an 1120f has to be filed as a treaty based return claiming no taxable income at all its just a return saying you owe no tax under the treaty,

In Canada be carefull however this income derived from the US is considered CND sourced but does not qualify for the small rate in Ontario on active income of 15% its taxed under the general rate of 28% this is a common mistake most Ca's make.