Definition of agent for Providing Self Employed Services

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WiseGuy
Posts: 20
Joined: Sat Jun 18, 2005 12:17 pm

Definition of agent for Providing Self Employed Services

Post by WiseGuy » Mon Jun 12, 2006 3:21 pm

In Serbinski's document "Taxation of Canadians Living and/or Working in the United States", page 8, (b) Canadian Residents Providing Self
Employed Personal Services in the U.S.
he states:

A Canadian resident providing personal services in the
U.S. as a self-employed individual falls under the
Canada U.S. Income Tax Convention (Treaty) -- Article
XIV - “Independent Personal Servicesâ€￾, which states:

“Income derived by an individual who is a resident of a
Contracting State in respect of independent personal
services may be taxed in that State. Such income may
also be taxed in the other Contracting State if the
individual has or had a fixed base regularly available to
him in that other State but only to the extent that the
income is attributable to the fixed base.â€￾

Therefore all self employment income is exempt from
U.S. taxation, irrespective of amount earned or time
spent in the United States, so long as it is paid to the self
employed individual personally as a self employed
individual, unless the individual has a fixed base in the
United States.

The Canadian individual could be deemed to have a permanent establishment in the U.S. if:
He has an office in the U.S.; or
He uses the services of an agent in the U.S. who has
independent authority to enter into contracts on behalf
of the individual.

In this instance, if one was working under a 1099, would their recruiting/employment agency be considered the "agent" thus denying them the benefits of this treaty?

Thanks.

nelsona
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Location: Nowhere, man

Post by nelsona » Tue Jun 13, 2006 6:42 am

The answer, quite frankly, is 'could be'.

The 'fixed base' issue is very complex ,and really can only be determined on a case by case basis.

Add to this that the stae would also have a say as to whetherr THEY think you have a fixed base, too and thus taxable at the state level.

Even providing you with a desk that is 'yours' at your place of work can be considereed fixed base, especailly if they are your sole client.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

WiseGuy
Posts: 20
Joined: Sat Jun 18, 2005 12:17 pm

Post by WiseGuy » Tue Jun 13, 2006 10:15 am

Thanks for the reply.

Here is my situation: I accepted a contract on a 1099 basis through an employment agency working for a major telecom vendor. My job is to spend 4-6 weeks at various client sites across the U.S. conducting system conformance testing. I would never have a "fixed base" at any one client.

Would my employment agency still be considered "the agent"?

Thanks.

nelsona
Posts: 16510
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona » Tue Jun 13, 2006 10:51 am

You are working for the agent, and thus would probably not be entitled to Article XIV.

This shouldn't bother you too much, since you still live in Canada (this has to be the case), and you should still be paying CPP in canada on your self-employement income.

This gets you off the hook for any SE tax in US (15%), so you should not owe any Cdn tax on your US income when all is said and done.

You may owe tax in each state that you've worked in, but that would be so regardless of the treaty. All your US income tax (fed or state) will be used up on your Cdnb return, which is as it should be.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

nelsona
Posts: 16510
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona » Tue Jun 13, 2006 10:55 am

Just to clarify, you won't have any US tax left-over when you claim it on your Cdn tax return.

The only hitch is probably that you haven't had any IRS tax withheld yet, so you may wish to be sending them quarterly installments now, to avoid huge bill in spring, and underpayment penalties.

same for your state(s).
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

WiseGuy
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Joined: Sat Jun 18, 2005 12:17 pm

Post by WiseGuy » Tue Jun 13, 2006 12:15 pm

Thanks again, Nelson.

The part of the definition that's still bothering me is: He uses the services of an agent in the U.S. who has independent authority to enter into contracts on behalf of the individual.

Since the agency requires me to sign a written document agreeing to any new contract, do they really have "independent authority"?

Thanks.

nelsona
Posts: 16510
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona » Tue Jun 13, 2006 12:39 pm

it would probably cost you more than it is worth to find out. You will not save any tax by getting an exemption.

Report your full US income as a non-resident, get your certificate of Compliance for CPP (this will be much more useful than trying to determine whether or not you are exempt from income tax), and pay the majority of your tax to IRS.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

WiseGuy
Posts: 20
Joined: Sat Jun 18, 2005 12:17 pm

1099 Controversy, IRS 20 point checklist, and Form SS-8

Post by WiseGuy » Tue Jun 27, 2006 6:31 pm

Thanks Nelson.

I was researching the whole 1099 vs W2 issue and came across this checklist (it appears the employee vs. independent contractor classification is not that straight forward and a lot of companies are (mis)using it in response to meeting budget constraints). Some of the companies receiving huge fines by the IRS include: IBM, Microsft, and Time Warner! The potential fines are up to $250,000! See:http://www.topechelon.com/recruiters/co ... /whats.htm - "1099 Controversy"

Here's the list:

The 20 factors indicating whether an individual is an employee or an independent contractor are:

1. Instructions. An employee must comply with instructions about when, where, and how to work. Even if no instructions are given, the control factor is present if the employer has the right to control how the work results are achieved.

2. Training. An employee may be trained to perform services in a particular manner. Independent contractors ordinarily use their own methods and receive no training from the purchasers of their services.

3. Integration. An employee's services are usually integrated into the business operations because the services are important to the success or continuation of the business. This shows that the employee is subject to direction and control.

4. Services rendered personally. An employee renders services personally. This shows that the employer is interested in the methods as well as the results.

5. Hiring assistants. An employee works for an employer who hires, supervises, and pays workers. An independent contractor can hire, supervise, and pay assistants under a contract that requires him or her to provide materials and labor and to be responsible only for the result.

6. Continuing relationship. An employee generally has a continuing relationship with an employer. A continuing relationship may exist even if work is performed at recurring although irregular intervals.

7. Set hours of work. An employee usually has set hours of work established by an employer. An independent contractor generally can set his or her own work hours.

8. Full-time required. An employee may be required to work or be available full-time. This indicates control by the employer. An independent contractor can work when and for whom he or she chooses.

9. Work done on premises. An employee usually works on the premises of an employer, or works on a route or at a location designated by an employer.

10. Order or sequence set. An employee may be required to perform services in the order or sequence set by an employer. This shows that the employee is subject to direction and control.

11. Reports. An employee may be required to submit reports to an employer. This shows that the employer maintains a degree of control.

12. Payments. An employee is generally paid by the hour, week, or month. An independent contractor is usually paid by the job or on straight commission.

13. Expenses. An employee's business and travel expenses are generally paid by an employer. This shows that the employee is subject to regulation and control.

14. Tools and materials. An employee is normally furnished significant tools, materials, and other equipment by an employer.

15. Investment. An independent contractor has a significant investment in the facilities he or she uses in performing services for someone else.

16. Profit or loss. An independent contractor can make a profit or suffer a loss.

17. Works for more than one person or firm. An independent contractor is generally free to provide his or her services to two or more unrelated persons or firms at the same time.

18. Offers services to general public. An independent contractor makes his or her services available to the general public.

19. Right to fire. An employee can be fired by an employer. An independent contractor cannot be fire so long as he or she produces a result that meets the specifications of the contract.

20. Right to quit. An employee can quit his or her job at any time without incurring liability. An independent contractor usually agrees to complete a specific job and is responsible for its satisfactory completion, or is legally obligated to make good for failure to complete it.

The whole just of the matter is that because a company calls you an "independent contractor", writes you a generic "employment contract" saying you're an "independent contractor", and even sends you a 1099 every year, doesn't mean you're an "independent contractor" in the eyes of the IRS!

Also. by using the "independent contractor" status, the worker also gives up the rights of coverage under the Fair Labor Standards Act (FLSA), including pay of time and a half for overtime.
See: http://www.topechelon.com/recruiters/co ... /flsa1.htm - "FLSA Executive Overview".

Similar to CRA NR-73 (Determination of Residency Status - Leaving Canada), here's the IRS's Form SS-8 www.irs.gov/pub/irs-pdf/fss8.pdf - "Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding".

Thanks,

CK

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