Self Employment Income for USA Resident working in Canada

toad · Post by **toad** » Sun Mar 06, 2011 7:32 pm

Hi,

My wife will be a USA resident this 2011 tax year. She will be working in Canada (she only has a TN visa, and can't work in USA) both temping at various employers, and also starting her own business.

I've read this: Totalization Agreement with Canada, http://www.socialsecurity.gov/internati ... l#coverage

My understanding is her income earned at various Canadian employers, will be subject to Canadian CPP deductions.

However, her income from self employment, because of the agreement , is subject to USA Social Security since she is a USA resident, and she needs to get a letter from the IRS to give to Canada, to show that she is paying it there. Therefore, she will not have to pay Canadian CPP on the income.

Is it possible to file with both of these scenarios?

Also, on which USA tax form does she report her Canadian self employment income?
Thanks!

nelsona · Post by **nelsona** » Mon Mar 07, 2011 3:32 pm

Your assessment is correct. She files on the same form as anyu other self-employed.

nelsona · Post by **nelsona** » Mon Mar 07, 2011 3:33 pm

And if she is truly resident of US, then her self-employemnt in canada should not even be taxed there, unless she is spending inordinate time there, which may actually make her Cdn resident.

toad · Post by **toad** » Sun Mar 27, 2011 7:57 pm

She is truly a resident of the US - just a daily commuter from US to Canada, and starting her own sole-proprietorship business in Canada.

So when she files, all of her business income/expenses does not need to be reported on a Canadian non-resident tax T1? (Like we are doing with rental income)

JGCA · Post by **JGCA** » Mon Mar 28, 2011 7:44 pm

Correct the sec 216 rental income return will only show the rental income no other items. You state however that she will be starting a sole proprietorship business in Canada if this is the case and she has a permanent establishment of this sole prop in Canada she will be subject to CND tax , if on the otherhand the business is registered in the US and she only commutes to do work in Canada she should not be required to file CND returns on this business income

toad · Post by **toad** » Mon Jan 30, 2012 8:38 pm

JGCA, your statement is correct: she has started a sole proprietorship in Canada, and has no business dealings/office in the USA. My understanding is she must file a T1 and pay canadian income tax, and a 1040 and can claim the canadian tax as a credit (probably a zero tax liability in the USA). The question is, what about social security, medicare and unemployment? Because of the Totalization Agreement with Canada, it looks like she owes this to the USA not Canada.... which makes a weird situation where Canada gets her income tax, and USA gets her payroll tax...

JGCA · Post by **JGCA** » Tue Jan 31, 2012 4:04 pm

She is resident in US so she files in US all her income including the sole proprietorship in Canada, she pays all tax in US including the self employment tax in US and gets a deduction for teh CPP paid to Canada this is creditable to her in the US. She pays no UIC or Medicare tax in Canada only income tax which she credits to her US tax return.

nelsona · Post by **nelsona** » Tue Jan 31, 2012 5:30 pm

She can only pay ss or cpp on the same income.

If she is residnt in canada, she will be exempt from SS/SE tax. If she lives in US, she will be exempt from CPP.