Remote work for American company from Canada

[tabarnouche]

I'm U.S. Citizen landing as a permanent resident in Canada shortly. I'll be living in Quebec year round, but will continue to work remotely for an American company that pays me in USD to an American bank account.

I've spoken to several accountants and the Canada revenue agency who all gave me different advice.

One said to fill out a W-4 with my company and calculate exemptions for what I'll be having to pay to Canada (something like 80+). File Canada first then U.S. 2nd with foreign tax credit.

Another said I should simplify things by becoming a self-employed proprietor and contract work out to the American business. This would mean losing perks of being an employee -- vacation time, severance package, etc.

And the Canada Revenue agent I spoke to just now told me I should continue having U.S. Federal taxes deducted from my paycheck (she wasn't sure about State tax), and to file my U.S. Federal taxes first, followed by Canadian with a federal foreign tax credit for taxes already paid to the U.S.

I was surprised to hear that but sounds like it would be the easiest route in terms of making it easy on my employer.

Anyone have any experience in this matter who can foresee any problems arising out of this?

[nelsona]

Yes, there is a problem. When you are physically working and living in canada, CRA believes that THEY get first cut on taxes (ignore what CRA telephlunkie said, they are just as bad as IRS in giving misinformation), so you could see yourself being denied the tax credit on your Cdn return, and denied one on your US return too. That is why you are getting 2 stories (one saying US will tax you and one saying Canada will tax you.)
The order in which you file is meaningless. Taxes are filed for the year, not in a certain sequence (see what I mean by CRA stupidity?)

There are also QPP (Que SS issues) and UI issues. It would be one thing if you were splitting your time, but you apparently are not.


The correct way is to either become an Cdn-paid employee (with Cdn benefits) or become a contrator. Really, the US fringe benefits are not worth anything in Canada, and you can ans should get a hefty boost in remuneration for being taken off the books. Contractors typically get paid 50-60% more than employees.

In canada it is an even greater benefit to be self-employed in canada than an employee, so I would be pushing this solution.

[tabarnouche]

Thank you for your response! These are murky waters I'm treading... sending everything I get along to our company accountant to see what he thinks of all of this.

What do you think of this answer I received from a different forum?

Response: This does require a bit of careful planning. If you are outside the US but still working for a US employer, you should submit a W-4 (there's a hideously complex computation you do for income earned outside the US, which is pretty close to figuring out your estimated US tax liability, plus a special form. I think the last time I did this I had something like 88 exemptions... (See Publication 514) That means your employer will continue to deduct US social security and medicare from your income, but not income tax. You will need to pay estimated tax payments to Canada throughout the year (since you don't have any withholding).
When you file, you will do your Canadian return first. You get to show the social security and medicare taxes as a foreign tax credit on your Canadian return. Then you compute your US tax liability and can take your Canadian tax liability as a credit on your return.
Note that if you are married, you will need to decide if you want to do "married filing separate" or "married filing joint" on your US return (there is no joint filing in Canada - you just cross reference to one another's returns). If you do married filing joint be careful about your Canadian spouse's TFSAs and RRSPs as those must be declared on your (joint) US tax return. A TFSA requires 10 PAGES of forms for any year in which there is a contribution and 6 pages for any year in which there is not a contribution - plus you are supposed to get an EIN for each TFSA. RRSPs have a special 1 page form.
The US tax system hates expats.

You are no longer resident in any US state, so you don't need to file a state income tax return (you might need to do one for your last partial year). In Canada you actually do file a provincial return, it just happens to be at the same time as the Canadian return.

[nelsona]

Lots of errors in relation to canada. IRS may accept what this person says, and Canada may not. In QC you do file 2 returns. The studd about TFSA is just trying to show a little extra knowledge, wuithout any detail. Fluffiness.

And Canada will prooably not accept the fica taxes, since they willsay you are working in canada.

I do agree that it is murky, so best become a contractor. I assume you are marrying, since you could not become PR of canada under this work arrangement, so, simplify and actually make more money.

sate taxes. even more murky as they don't abide by treaties. While you may not live in a state, That state could consider you as working at that office, so you may not be free of state obligations.

[nelsona]

What the other person described is more accuarte for a transferree to a foreign offcie, not a telecommuter.

The option of become a Cdn employee of the US firm is possible, but most US firms balk at this becasue of the possibility of setting up a Cdn nexus.

I really think contractor (with a hefty raise) is the way to go.

[tabarnouche]

is a canadian nexus a business registration, payroll thing?

[nelsona]

Yes.