GC holder working remotely in Canada for a US employer

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OttawaSenators
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GC holder working remotely in Canada for a US employer

Post by OttawaSenators »

I am a US GC holder and a Canadian citizen, and have been in Canada for 3 months due to my mom’s colon cancer. Unfortunately she won’t last long and I will be back in the US before my 1 year is up. I was on Family Medical Leave (FMLA) up until now. My US employer is willing to let me work remotely from Canada. However their HR and Payroll and tax accountants are saying that they cannot do that if my entire stay in Canada goes beyond 183 days. They’re saying this is due to the US-Canada tax treaty.

Is this true? And what are the tax implications of this? Do I really have to file a Canadian tax return even though I’m on the US payroll? I doubt this is a treaty issue and it’s more like the Canadian tax code issue.

In any case, please enlighten me and/or point me to links to study more on this issue.
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nelsona
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Re: GC holder working remotely in Canada for a US employer

Post by nelsona »

It's not really due to the tax treaty, however, if you live and work in Canada, you should be on Cdn payroll for CPP/EI/SS/Fica purposes, so the solution is to either pay you as a contractor, or put you on a CDn payroll. And it is not really a 183 day thing either, although that sels the deal.

This is a decision faced by all Cdn returnees who wish to stay with their current US "employer". Most chose to become a contractor, for a slightly higher remuneration, and give up the US benefits, since they are of little value when living in Canada anyway. Most US employers are afraid to create a payroll for a single Cdn employee, for fear of the reporting requirements it *might* create for them.
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OttawaSenators
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Re: GC holder working remotely in Canada for a US employer

Post by OttawaSenators »

Thanks Nelsona. My real intention is not to return to Canada for good. I have to be back in the US before the year is up anyway. Plus this is only a temporary stay until my mom passes away.

Besides employer’s own interpretation of the tax codes and treaties, what should I do? Let’s say I work remotely for another 6 months and get paid from US payroll. Do I have to file taxes with Revenue Canada even though I’ll have returned to US by then?
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OttawaSenators
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Re: GC holder working remotely in Canada for a US employer

Post by OttawaSenators »

From what I am reading, it looks like for 2020 I have the following possible scenarios (please bear with me as it’s been a while since I read about the Canadian tax laws):

1. I stay in Canada for 183+ days and then return to the US for good: I have to file taxes as a deemed resident with CRA on all my worldwide income.

2. I go back to the US before the 183 days is up: no biggie and just file taxes with the US.

Please correct me if I am wrong.
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nelsona
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Re: GC holder working remotely in Canada for a US employer

Post by nelsona »

How/if the employer wishes to hire/pay you is really up to them, isn't it? If they feel they cannot pay you as a US employee, then you will need to find one of the other options, Explaining your plans might encourage them to leave it as is. Many US companies send there employees to Canada to work for extended periods (I did it several times over the 20 years)

As to Cdn taxation, the you are in Canada less that 183 days in ANY 365 day period, and if you (a) have no home in Canada and (b) maintain your home in US, you will not be taxable there.
Otherwise you are taxable in Canada for the time period you live there, even if it is less than 183 days.

However if it is more than 183 days in any 365 day period, you are DEFINITELY taxable in Canada on that work income, and perhaps world income.

just as an aside for later at tax time. Any income you earn while physically in Canada, even if no Cdn tax is owed, counts as foreign sourced income, and can be used on form 1116 to collect tax credits, perhaps for RRSP withdrawal taxes that you have never used up.
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OttawaSenators
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Re: GC holder working remotely in Canada for a US employer

Post by OttawaSenators »

Thanks again Nelsona for the detailed explanation.

The employer has a substantial presence in Canada too. I wonder why they don’t ask their Canadian HR about these tax laws. Instead, they keep bringing up the tax treaty. They also told me I needed to get a re-entry permit for stays over 6 months which is not true. It’s needed for 1+ year stays. Anyway, at the end of the day it’s up to the employer as you’ve said it too. Worst case scenario I lose this job and go back to a new job. Not much I can do.
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OttawaSenators
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Re: GC holder working remotely in Canada for a US employer

Post by OttawaSenators »

Ok, the latest rubbish I’ve heard from the HR is: the US-Canada tax treaty does not allow them to let a US employee telecommute from Canada for more than 183 days, and not the tax code itself. They can’t even quote which section of the treaty says so. Instead they pointed me to the entire tax treaty document.

Is there such a thing in the tax treaty?
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nelsona
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Re: GC holder working remotely in Canada for a US employer

Post by nelsona »

Of course there isn't.
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OttawaSenators
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Re: GC holder working remotely in Canada for a US employer

Post by OttawaSenators »

They're quoting Article 10 of the treaty as the reason why they have to transfer me over to the Canadian payroll after 183 days:

"2. Notwithstanding the provisions of paragraph 1, remuneration derived by
a resident of a Contracting State in respect of an employment exercised in the
other Contracting State shall be taxable only in the first-mentioned State if:
(a) Such remuneration does not exceed ten thousand dollars
($10,000) in the currency of that other State; or
(b) The recipient is present in that other State for a period or periods
not exceeding in the aggregate 183 days in any twelve-month period
commencing or ending in the fiscal year concerned, and the
remuneration is not paid by, or on behalf of, a person who is a resident of
that other State and is not borne by a permanent establishment in that
other State.
12"

Now it seems to be up to the VP of our org to decide whether to transfer me over or not. All that and at the end I'll have to eventually move back to the US after my mom passes away!! Oh well...
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nelsona
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Re: GC holder working remotely in Canada for a US employer

Post by nelsona »

That clause has nothing to do with whether they can payroll you, it has to do with whether YOU need to pay taxes in US.
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OttawaSenators
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Re: GC holder working remotely in Canada for a US employer

Post by OttawaSenators »

I guess there's no point in arguing with their HR and Payroll. They say as soon as my worldwide income becomes taxable in Canada, they have to switch me over to the Canadian payroll. That sounds more like a company policy. I wonder why. I am responsible for filing taxes with Revenue Canada should I cross the 183 day limit, not them.
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nelsona
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Re: GC holder working remotely in Canada for a US employer

Post by nelsona »

Exactly. Howevever that are responsible for their portion of payroll taxes (EI,CPP).

Nonethe less companies send employees to foreign assignments all the time, and have no problem with it, especially when temporary, which could be as long as 5 years, frankly.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
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