Canadian citizen living in the US with Canadian self-employment incomes

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mmachemy
Posts: 2
Joined: Thu Oct 04, 2018 5:24 pm

Canadian citizen living in the US with Canadian self-employment incomes

Post by mmachemy »

I am a Canadian citizen who is married to a US citizen. My husband has never lived in Canada. I moved to the US right at the end of 2017. I now have a green card in the US. I am self-employed and have a business number in Canada for GST collecting only. I am not incorporated. In the past, I have reported my self-employment earnings in Canada on a personal T1 form. In 2018, I will be working as a contractor (self-employed) for a provincial Crown Corporation, located in British Columbia, Canada, and earning Canadian dollars. I collect GST that I remit to the Canadian government. in 2018, I will be working remotely from the US the entire duration of the contract except for a few days when I will be in their office in British Columbia (less than 10% of my work is done in Canada).
I am considered a US resident for tax purposes. I will have stayed 11 months in the US in 2018. I am considered a non-resident of Canada for tax purposes.

As a non-resident of Canada, I understand that I am subject to Canadian tax on income from sources inside Canada under the Part I tax. However, because there is a tax treaty between Canada and the US, the terms of the treaty may reduce or eliminate the tax on certain types of income.

The tax treaty states that income derived by an individual who is a resident of a Contracting State (US) in respect of independent personal services may be taxed in that State (US). Such income may also be taxed in the other Contracting State (Canada) if the individual has or had a fixed base regularly available to him in that other State (Canada) but only to the extent that the income is attributable to the fixed base. I created a business number in Canada two years ago for GST purposes only. I do not have a fixed base in Canada, I do not have an office or place to work available to me in Canada. When I meet up with my client in Canada (less than 5% of my work), I am assigned random corner desks in the office.

a) Are these random corner desks where I work 5% of the time when I am in Canada considered a fixed base? If so, do I need to pay taxes in Canada on that 5% only? (of course, I am referring to the T1 form, I am aware that no matter what, I will have to remit the GST to the government)


The tax treaty also states that deduction and withholding of tax on account of the tax liability for a taxable year on remuneration paid to an individual who is a resident of a Contracting State (US) in respect of the performance of independent personal services in the other Contracting State (Canada) may be required by that other State (Canada), but with respect to the first five thousand dollars ($5,000) in the currency of that other State, paid as remuneration in that taxable year by each payer, such deduction and withholding shall not exceed 10 per cent of the payment.

b) Does that mean that Canada is allowed to withold 10% of tax on the first $5,000 only? Of course, that is assuming that I have to pay any taxes in Canada in the first place.

Thank you!
nelsona
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Re: Canadian citizen living in the US with Canadian self-employment incomes

Post by nelsona »

Withholding and actual tax are two separate things.

Self-employment income in Canada by a US resident is NOT taxable in US, as long as you have not established a "Permanent Establishment"(PE) .

Nothing you describe would indicate that you have such a physical PE, however the latest treaty also defines PE by the number o days spent in the other country. 183 days in ANY 365-day period (not just the calendar year) would make it a PE.

So, as long as you spend less than 1/2 your days in Canada, you are not taxable.

Withholding is a required, unless you show the payor the proof they need to exempt your from withholding. This can be complex and take time to establish, during which time they withhold.

The final solution will be the non-resident tax return, on which you deduct the exempt income, and recover any incorrectly withheld tax.

As to the paragraph you quote, it means that they would collect 10% on the first $5000 and 15% on all income above that, until you establish that you are not subject to withholding.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
mmachemy
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Joined: Thu Oct 04, 2018 5:24 pm

Re: Canadian citizen living in the US with Canadian self-employment incomes

Post by mmachemy »

Thank you very much for your answer.

According to your response, I am not taxable in Canada, and I will have to file a non-resident tax return in Canada in which I will deduct my exempt incomes (all my incomes) and to recover my incorrectly withheld tax. Is this correct?

Marlene
nelsona
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Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Canadian citizen living in the US with Canadian self-employment incomes

Post by nelsona »

Yes. But you should be taking the steps to avoid withholding altogether. Your payor can help you on that count. Ask them what they need.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
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