CAD citizen/US resident/with T4 and RL1 which country taxes first

This is our main tax information forum which deals with topics concerning Canadians living and working in the U.S., U.S. citizens contemplating working in Canada, and all aspects of Canadian and U.S. income tax and related adminstrative issues.

Moderator: Mark T Serbinski CA CPA

Post Reply
melissadkb
Posts: 5
Joined: Mon Mar 06, 2017 8:01 pm

CAD citizen/US resident/with T4 and RL1 which country taxes first

Post by melissadkb »

Hello,

Canadian citizen with US residency. I work remotely for my long-time Canadian employer (Quebec), so 100% of my income is from Canada. I still receive T4 and RL1.
On my T4, the Province of employment code is ZZ, there is no tax withheld. On my RL1 there is a Quebec income tax withheld.
I spoke with multiple CRA and RQ representatives and everyone's opinion was that "yes, since your income is 100% Quebec based, it is fully taxable in Canada (and Quebec)". So I prepared my T1 General and went on to prepare my US taxes. However, my US accountant's opinion is that it is the US that has the right to tax me first. So she asked me to become an independent contractor going forward.
My questions:
1. Does US have the right to tax me first?
2. If yes, is there a way to do that while still an employee, probably with a different province code on the slip or something (not quite sure how my employer will react to the whole independent contractor idea). I think that CRA and RQ will not agree to not receive any taxes since T4 and RL1 are issued
3. If I have to or decide to become a self employed (contractor) here in the US, what will be an estimated percentage of tax+social+whatever else is owed by a self-employed (I am covered by my husband medical)

Please help
Thank you in advance
nelsona
Posts: 18314
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: CAD citizen/US resident/with T4 and RL1 which country taxes first

Post by nelsona »

Technically, you are taxed "first", where you perform the work, and then where you live. Since you didn't live or work in Canada, you should be first taxed in US, and in your state. The "source" of the income is US. They are owed FULL tax on the wages your earned.

And unless your employer explains this to CRA and MRQ, it is very possible that they would deny any foreign tax credit for your US taxes. meaning that you could be in a battle to not pay tax in US, state, Canada, AND QC.

In my opinion, for canada, you need to report the income in Canada (as a non-resident), filing in both CRA and MRQ, but taking a deduction (line 256 of fed return, similar line on MRQ return for the wages proportional to the number of days your worked in US vs Canada, as treaty exempt.

That is the problem with trying to be a remote employee, and your advisor is correct to say you should be a contractor, OR have your employer pay you as a foreign worker on a US payroll.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
melissadkb
Posts: 5
Joined: Mon Mar 06, 2017 8:01 pm

Re: CAD citizen/US resident/with T4 and RL1 which country taxes first

Post by melissadkb »

So if I have for example $50,000 gross wages from Canada (and this is my worldwide income), I enter it on line 150 and on line 256 of the federal return? This will bring my taxable income at $0 and I will have no taxes payable to Canada. Do I send a $0 return?

I read the tax treaty and found Article XV to maybe be my case. It is a little bit confusing but if I am understanding it correctly, it says that if I am physically not in Canada for more than 183 days (which I am not), it is only the US that has the right to tax me.
Also, I was thinking, I have to attach a letter to my Canadian return citing this article, or at least mentioning it, in case I send a $0 return. Otherwise CRA and MRQ could reassess my return and tax me..
Please let me know if you read the treaty the same way, if you have some time.
I cannot believe there are no simple rules for that kind of work relations, it is so common these days to work remotely..
nelsona
Posts: 18314
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: CAD citizen/US resident/with T4 and RL1 which country taxes first

Post by nelsona »

You would OF COURSE have to explain yourself, and your employer may have to as well, attesting that you did not work in Canada.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Post Reply