US employee spending most time in Canada

skoper · Post by **skoper** » Thu Oct 17, 2013 3:24 pm

I am Cdn citizen on TN visa, working for US firm, but will likely be spending most of my time (>183 days) next year in Canada on project work. I plan to maintain official residence in the US, but in this event I will no longer meet the SBT, and I will likely be considered a Cdn tax resident by CCRA rules. For that tax year, do I end up filing Canadian taxes as if I have Cdn tax residency? Does the IRS then issue a refund for all the wage taxes it collected throughout that year?

nelsona · Post by **nelsona** » Thu Oct 17, 2013 5:19 pm

This is not an ideal situation, as your income is FIRST taxed by IRS, canadfa only gets whats left.

So, because of spending so much time i nCanada, you become a Cdn tax resident, and have to report all your income to Canada, as well as uS, and then claim the US tax (IRS, state, and FICA) as a foreign tax credit.

nelsona · Post by **nelsona** » Thu Oct 17, 2013 5:24 pm

Technically the work you do in Canada is supposed to be taxed in Canada first, but there is little point doing this, since ALL will be taxed by Canada and US anyways.

Your US sourced income will be taxed at Canada rate, and your Cdn-sourced income will be taxed at canada rate. Best to jut pay most to US and a little to canada, since IRS will have already collected all the withholding.

You are still resident of US in such a year. You would be considered a deemed resident of Canada by days of presence.

nelsona · Post by **nelsona** » Thu Oct 17, 2013 5:25 pm

I would be finding some way to spend more time outside Canada, to avoid the 183 day in Canada rule, and then relying on treaty.

skoper · Post by **skoper** » Thu Oct 31, 2013 12:19 pm

If I am considered a resident by CRA for 2014, (not even a deemed resident as I will have residential ties to Canada), will I be paying full taxes to Canada, and then will have to recover them from IRS through Form 1116? If so, is there a limit to the amount of foreign taxes that can be claimed?

nelsona · Post by **nelsona** » Thu Oct 31, 2013 2:25 pm

This is tricky, since you are legitimately on the US payroll of your employer (as opposed to someone who is permanently living in Canada and working.
You will only be considered Cdn resident from the date you establish ties.

So, you will have 2 "regimes" during the tax year:
1. Pre-arrival in Canada where none of your income is taxable there, but the wages earned in Canada will be 1116-eligible
2. Post arrival in Canada, when all your income will be taxable in canada, the US-earned portion being eligible for FTC on your Cdn return, and the Cdn-earned income eligible for 1116 treatment for irs.

Arrival, will be the earliest of (a) the day you establish more Cdn residential ties than US (which could be never), and (b) the 1st day of presence in Canada that eventually satisfies the 183-day in any 365 day period (which ideally, if you could arrange it, be never).

skoper · Post by **skoper** » Sun Nov 03, 2013 7:41 pm

Ok, makes sense. Is there a limit to how much can be claimed through FTC 1116? I thought I recall seeing a figure around $86k somewhere (not sure if it was referring to income or actual FTC), but is there a possibility not all taxes can be recovered with FTC?

nelsona · Post by **nelsona** » Mon Nov 04, 2013 10:03 am

No limit. You are thinking of the foreign earned income exclusion, which you would not be eligible for.