Cdn ind contractor working for German consulting firm in US

travelista · Post by **travelista** » Fri Jul 22, 2011 6:03 pm

I've been doing some research regarding an upcoming opportunity I will be taking in Washington, D.C as a Canadian citizen and I've found this forum to be really helpful so far. My question is slightly unique though, so I hope you can help.

I spent 3.5 months working as an independent contractor to a German mgmt consulting firm in Germany earlier this year and as I understand, I should not be tax resident there as it was under 180 days of work. Now I am back in Canada and this German company has a new contract with a US client and I will be doing 60 days of consulting work as a contractor through the German firm in the US starting September.

As I understand, I can apply for a TN visa at the border under the mgmt consulting field, but my question involves how taxes will work. Since the contract is between the US client and a German firm, the German firm will be paying me in euros into my German bank account.

Does this mean I need to file taxes in Germany, US and Canada? I'm completely lost on this topic! Or since I'm working under 180 days in the US this year, am I also not a tax resident there? Should I just be filing all my world income on one Canadian tax form?

Thanks in advance.

nelsona · Post by **nelsona** » Sat Jul 23, 2011 7:08 am

Since you disd not establish residence in Germany (i believe under the treaty with Germany) and you did not spend sufficent time there, your German income was taxable in canada only.

The same will be for your US work, unless you immediately establish ties in US sufficient to make you resident there, this will make you a non-resdient of canada, and tax will be owd to US only. Otherwise you will continue to owe tax in Canada, and US taxation will depend on how many days you spend in US.

The currency and local of your bank do not matter.

travelista · Post by **travelista** » Sat Jul 23, 2011 11:06 am

Great, thanks for your help and the prompt reply!

travelista · Post by **travelista** » Wed Oct 26, 2011 1:46 pm

Now that I've started the contract work in the US, a few more questions have come up regarding taxes that I want to be prepared for come tax season next year. This year I will only be doing 60 days of work in the US, but spending approx 90 days in the country. Next year, I will have a full year contract renewal with the same client and will be spending pretty much the entire year working/living in the US.

1) Do I/should I apply for a SSN even if I don't owe taxes to the US this year? Will having a SSN mean I am liable to paying social security in the US immediately? What about self-employment tax?
2) I'm on a TN visa as I am working as a Cdn mgmt consultant in the US, but the German firm that is contracting me is not actually hiring me as an employee. Rather, I will be invoicing them as an independent unincorpororated contractor and they will not withhold any taxes on my behalf. Do I just file a 1040NR and the exemption form for this tax year?

Thanks!

nelsona · Post by **nelsona** » Wed Oct 26, 2011 2:15 pm

If you spend more than 183 days in US in any 365-day period, you become taxable in US for all the income for that period, so I'm guessing you will be paying tax in US for the income fom 2011 and 2012. You can file a 1040NR for 2011 if you wish and pay no tax, but you may not be able to exempt the US income when they look at 2012 return, and may have to back-file 1040NR for 2011 at that time. So, you should now this by april, and if you are going to go over 183 in 365 than you should proabaly just report the income.

This is a new aspect of the recent treaty that does no longer allows contractors to exempt their US-source income if they spend to much time in US (regardles of how established you are or are not) and makes people have to retroactively chnage their taxes.

If you continue to have sufficent ties in Canada next year, you can continue to file in canada and you can contiue to file 1040NR (with a treaty permission) but the US income will be taxable first in US.

You can avoid SE tax by making sure you pay the CPP on your 2011 and 2012 return, and ask CRA for a compliance letter for IRS.

You don't strictly need an SSN, but having a TN allows you to get one, and makes lfe in US MUCH easier. It won't determine whether or not you have to pay SS or SE tax, so don't worry.

You should be making quarterly payments in 2012 to IRS to avoid penalty.

nelsona · Post by **nelsona** » Wed Oct 26, 2011 2:20 pm

To sum up:
If you keep residential ties in canada:
For 2011, you will report world income on your Cdn return, and elect to pay CPP and request a compliance letter. You will report US income on your 1040NR, but not SE tax. canada will credit your US tax
For 2011, you will report world income on Cdn return, elect to pay CPP. You will report your US income on a 1040NR, but not SE tax. canadawill credit you the US tax on your US tax.

If you do NOT keep ties, it is a lot more complicated, although youy might save a little tax. I would go there only if you think you might not return to canada in 2012.

travelista · Post by **travelista** » Wed Nov 02, 2011 10:44 am

Thanks for your feedback.

I guess technically I don't actually have any residential ties to Canada as I have no home and own no property there. I do have some Cdn RRSPs, a checking account and a Cdn drivers license, but for all other purposes I am living/working full time in the US from Oct 2011-Dec 2012 with a leased residence, a US bank account and a car.

Would it be better in this case to declare non-residency from Canada altogether for 2011/12 or is that not possible due to the fact that I'm a Canadian contractor on a TN visa and can't be considered self-employed in the US under this visa? What kind of work would be involved exactly to remove ties to Canada and is it terribly difficult to be considered resident again in 2013 if I were to return at that point?

nelsona · Post by **nelsona** » Wed Nov 02, 2011 11:53 am

There is no problem being self-employed on TN (and this would not change residency anways). Self-SPONSORSHIP is what is forbidden. If you have few ties in canada and live and work in US, you should file as a US resident. Who knows where you will go in 2012/13. Best file as deprted when in fact you have.

I would be filing a departure return based on leaving canada in October 2011. There is nothong 'more' for you to do than what you are doing. You should be getting rid of Cdn DL/plates and medicare since they are no longer valid anyways.

What are you dong for US health insurance, since you are a contractor?

travelista · Post by **travelista** » Wed Nov 02, 2011 8:39 pm

Well, since US health insurance options are pretty dismal and expensive for contractors not on a large scale company plan, I found out that Cdn provincial health care systems (at least in AB) make exceptions and extend coverage past the normal 6 month period for citizens leaving the country for work/university up to 5 years if you send them a letter from your employer/school proving this status.

So I am using a very comprehensive and reasonably priced travel medical insurance package from RBC at the moment with 0 deductible and emergency dental. Whether this constitutes as a tie to Canada, I don't know.. I figure for tax purposes it shouldn't matter?

If I'm filing as US resident then, would it be worth it (in terms of tax savings/ability to deduct more expenses) to look into incorporating here or am I alright just sticking as a sole proprietor if it's only for 1-2 years?

nelsona · Post by **nelsona** » Thu Nov 03, 2011 6:33 am

Because US is a treaty country with a residence clause, you will not be considered Cdn tax resident.

The important thing about getting prov medical extensions is to request this before leaving, as apparently you have done.

I believe Incorporation should be looked at only on the basis of personal liability, not taxes.

JGCA · Post by **JGCA** » Thu Nov 03, 2011 9:31 am

As stated incorporation is not recommended in your case, you are clearly a Personal Services Corp meaning you are like an employee in discuise as such you will not be afforded the Federal corp tax rates beginning at 15% to 35% instead you will be taxed outright at the top rate of 35%.

Even if you went with an S copr ( Must be US resident or citizen ) this is a see through entity so you may as well do it as an individual save your self the corp filings and legal formalities associated to incorporation your costs will exceed your benefits especially since you say in 2 yr you will return to Canada.

travelista · Post by **travelista** » Thu Nov 03, 2011 9:46 am

Thank you so much to both of you for your feedback, it has been incredibly helpful.

To sum it up, I file as US resident beginning Oct 2011, do not incorporate and file a 1040 next year and pay personal income tax, self employment taxes and potentially state taxes as well. Will there be other forms I need to file in addition to the 1040? I assume this means I don't need to file for taxes in Canada anymore if I am considered US resident, until whenever I move back to Canada and earn income in that country again?

nelsona · Post by **nelsona** » Thu Nov 03, 2011 10:04 am

Well, firs tyear taxes are alittle more complex than what you summed up, but there are many threads on this.

For canada, your first place to look is the Emigrants guide.

For US, you may decide to file full 2011 1040, part 1040, or 1040NR as one of these will result in less US tax; you will have several methods to choose from.

You will have foreign account and RRSP reporting in US as well.

All in due time.