Question about U.S. employer paying Canadian consultant

[oakweather]

My employer, a Delaware C corporation, has no Canadian payroll, branch, or presence.

The Delaware Corporation would like to engage a consultant who lives in British Columbia and will be conducting the work in BC (outside of the U.S.). We received contradictory advice.

We were advised by someone that we need to report the earnings on a T4/T4A slip to the CRA.

We were, on the other hand, advised by someone else that we needed to do the following:
a) Collect W-8BEN from the consultant
b) Then issue neither 1099-NEC nor T4A (no tax forms at all)
c) It is up to the consultant to report the income net of expenses in his/her jurisdiction (in this case BC/Canada)

Please advise. Many thanks!

[nelsona]

If you pay the person as a consultant, and not an employee, you have no filing responsibilities in canada. That is left to the consultant. The consultant shpuld have no tax obligations in US either.

[lanman2000]

nelsona wrote:
> The consultant shpuld have no tax obligations in US either.

What if the consultant is living in BC but is a dual US / Canada Citizen? Wouldn't they owe some tax to the US?

[nelsona]

they can exclude the income by FEIE, or take credit for the Cdn tax paid.

[lanman2000]

[quote=nelsona post_id=530934 time=1726610167 user_id=30]r[/quote]
Interesting I just assumed that the US had first rights to collect taxes on the income since it's US Sourced. Sounds like you're saying just declare it all on the canadian return if resident in Canada and then just use FTC on the US return for US person filing worldwide income. That's super simple. I guess this is a treaty thing? Correct?

[ND]

"on the income since it's US Sourced' but it's NOT US sourced albeit paid by a US person DE Corp

[lanman2000]

ND wrote:
> "on the income since it's US Sourced' but it's NOT US sourced albeit
> paid by a US person DE Corp

Are you saying monies paid for services from a US corp to a US person living in Canada is not US Sourced? Is that because the person is living in Canada? I really want to confirm this. I've looked the treaty up and down and can't make heads or tales of it. Copilot is also confused, i even tried giving it a shot.

[lanman2000]

Actually in a moment of clarity it seems I have finally been able to give it a clear enough prompt for it to understand my question. It gave the following answer:

"
The determination of whether your income is “US Sourced” or “Canada Sourced” under the Canada-US tax treaty depends on where the services are performed. Since you are performing the consulting work in New York State, the income you earn from the US corporation on a 1099-NEC is considered US-sourced income(1)(2).

According to the Canada-US tax treaty, income from personal services is generally sourced in the country where the services are performed(1). Therefore, even though you live in Canada, the fact that you are physically performing the work in the United States means that the income is sourced in the US(2).

"

and when asked which country gets to tax it first It said the US... so I can't just declare it on the Canadian return and do either FEIE or FTC on the US return as nelsona said.

"Under the Canada-US tax treaty, the United States has the primary right to tax the income you earn from performing services within its borders(1)(2). Since you are performing the consulting work in New York, the income is considered US-sourced and will be taxed by the US first(1)(2).

However, to avoid double taxation, you can claim a foreign tax credit on your Canadian tax return for the taxes paid to the US(3). This credit will reduce your Canadian tax liability by the amount of tax you paid to the US on that income(3).

"