Worked for a few months this past year for my old Canadian employer remotely after I moved to the US. Paid Canadian taxes. I also moved this year from Canada. I have already done my exit taxes and used the info on my T4. Read through many threads with Nelson saying I should have been paid as a contractor and set aside US self employment taxes instead and not paid Canadian taxes. Bleep bleep, ship has sailed on that.
So now on my US tax return, can I claim foreign income tax credit on that remote Canadian work? Or am I going to get stung twice?
US resident worked remotely for Canadian company
Moderator: Mark T Serbinski CA CPA
Hi Betty,
I’m no expert, but this is my understanding of your situation. Generally speaking, all of the work that was done remotely from the US after you departed Canada should not be taxable in Canada; as it was not physically completed in Canada.
As you gathered from what Nelsona said elsewhere on this forum, it would have been much better if your former employer just wrote you a cheque and did not withhold any taxes, CPP and EI. No withholding of any kind was required on this income.
The problem you might run into if trying to claim a foreign tax credit on the US side is the IRS may deny it. This is because it was not supposed to be taxable in Canada. It’s as if you have given CRA a voluntary gift. However, it may be difficult for the IRS to determine this. They will likely just assume all of the T4 income was earned before you left Canada and may incorrectly give you credit for this.
The correct way to deal with this is likely to file a T1 Adjustment for your departure return to exclude this income. This should likely be deducted on line 256 and indicate something like “US Source Income taxed incorrectly on my T4â€. This will allow you to recover the tax you paid on this income to Canada, but I don’t think you will be able to recover the CPP and EI. If you are going to do this, you should also get a letter from your employer explaining what amount of income was earned remotely and provide this to CRA with the adjustment.
I’m no expert, but this is my understanding of your situation. Generally speaking, all of the work that was done remotely from the US after you departed Canada should not be taxable in Canada; as it was not physically completed in Canada.
As you gathered from what Nelsona said elsewhere on this forum, it would have been much better if your former employer just wrote you a cheque and did not withhold any taxes, CPP and EI. No withholding of any kind was required on this income.
The problem you might run into if trying to claim a foreign tax credit on the US side is the IRS may deny it. This is because it was not supposed to be taxable in Canada. It’s as if you have given CRA a voluntary gift. However, it may be difficult for the IRS to determine this. They will likely just assume all of the T4 income was earned before you left Canada and may incorrectly give you credit for this.
The correct way to deal with this is likely to file a T1 Adjustment for your departure return to exclude this income. This should likely be deducted on line 256 and indicate something like “US Source Income taxed incorrectly on my T4â€. This will allow you to recover the tax you paid on this income to Canada, but I don’t think you will be able to recover the CPP and EI. If you are going to do this, you should also get a letter from your employer explaining what amount of income was earned remotely and provide this to CRA with the adjustment.