Canadian IT Consultant working in USA - Tax questions

leecind3 · Post by **leecind3** » Tue Feb 21, 2012 8:27 pm

Thank you for the very helpful forum and articles on your website, particularly your presentation on IT Consultant Tax Implications. I wonder if you could help me clarify the tax implications for my particular situation. I am not married, have no dependents, own an income property in Canada, and have my principle residence in Canada.

I am a Canadian IT Consultant, and own a Canadian Corporation. My personal income is derived from dividends from the Canadian Corp (I don't normally take a salary) . In the 2011 tax year (Aug 2010 - July 2011) , the Canadian Corporation received a consulting contract from a US Corp, but I remained in Canada to do the work (remotely).

In Oct 2011, the US Corp required the work to be done in the US, and thus I have been physically present in the US on a TN status since Oct 2011 (end date negotiable). The Canadian Corp does not have an office in the US - I work out of my hotel room or at the client site. The US Corp pays the Canadian Corp for the services.

At this point, my questions are:
1. What US tax obligations does the Canadian Corporation have for the 2011 year end (Aug 2010 - July 2011)?
2. What US tax obligations does the Canadian Corporation have for the next tax year (Aug 2011 - July 2012)?
3. What are my personal US tax obligations?
4. Am I considered a non-resident alien for US filing purposes?
5. What is the impact on my personal taxes and Canadian Corp taxes if I stay >183 days in the US in 2012?

nelsona · Post by **nelsona** » Tue Feb 21, 2012 9:43 pm

1. None
2. Might have some, based on you being in US for 183 days in any 365 day period.
3. Same as above.
4. Yes, but the income would be US-sourced from the beginning of the period in which you meet the 183 day threshhold
5. See 2,3,4.

leecind3 · Post by **leecind3** » Tue Feb 21, 2012 10:27 pm

Thanks. For clarification - is the threshold of 183 days in any 365 DAY PERIOD, or CALENDAR year? I was under the impression that it was the latter (as per substantial presence test).
Is it correct that I have no US tax obligations OR need to file if I am <183 days?

nelsona · Post by **nelsona** » Wed Feb 22, 2012 7:41 am

It is any 365-day period, under the new permanent establishment article in the treaty.

JGCA · Post by **JGCA** » Wed Feb 22, 2012 7:41 pm

Once you have met the 183 days in any 2 month period as you will for your cop taxation yr of July 2012 your copr will also need to file a 1120F along with the pers 1040 you will be filing. In addition your corp will file a T2 in Canada showing the income and take a tax credit for the US tax paid on the 1120F. Note you will be tax at the high rate in Canada on teh T@ you can not claim the small business tax rate since the income is not Canadian active business income it is US sourced, you better stop taking dividends since teh copr is paying tax at the high rate you get no benfits anylonger by taking out dividends the formula does not work once the small businss tax rate of say 15.5% in Ontario becomes now 28%.

leecind3 · Post by **leecind3** » Thu Feb 23, 2012 4:23 pm

Many thanks to you both. I have not YET met 183 days...

1. IF I meet 183 days, in addition to the US tax filings for the corp and personal - are there any other future implications to my Canadian corp (you mentioned the higher tax rate on dividends - would this be same for salary?) or personal investments (TFSA, RRSP, investment property)?

2. IF I do NOT meet 183 days, then will there be ANY US tax or filings needed? ANY tax implications to my Canadian Corp?

Thanks again.

JGCA · Post by **JGCA** » Thu Feb 23, 2012 5:46 pm

New treaty now works on permanet establishment id=f you are not here for 183 days in any 12 month period no per establishment no US filings.

Once you file do not take dividends because of hi tax take salary because salary is deducted from Corp taxable income dividends are not that is why you do not take dividends the corp pays more tax now you no longer enjoy the lowe Small bus tax rate

vin1 · Post by **vin1** » Sat Feb 25, 2012 12:19 pm

My situation is very similar to leeind3.
Will be <100 days in US, permanent base in Canada, Canadian Corp, etc.
ie. 25% work done in US, 75% work done in Canada.

My potential client in US is asking for w8ben. Just need to understand the tax filing or actual overhead before I start the contract.

Questions:

1. Do I provide personal Tax ID or Corp tax id in w8ben line 6?
ie. do I need to call IRS to create tax id in my case?

2. Do I need to file US personal income tax (1040)?

3. Do I need to file US Corp income tax (1120F)?

Thank you very much.

nelsona · Post by **nelsona** » Sat Feb 25, 2012 1:10 pm

1. Read W8-BEN. It asks for your SIN, not a US number, since int assumes you are not resident. I wouldn't bother with EIN.
2. Not federal. You may have to in state.
3. It is a good practice to do so.

JGCA · Post by **JGCA** » Sat Feb 25, 2012 1:48 pm

Point 3 as stated its good to file a protective return and claim treaty benefits as Nelso said its a good point

vin1 · Post by **vin1** » Sat Feb 25, 2012 2:25 pm

Appreciate your reply.

I used to work in the US 10 years ago and therefore had a US tax ID.
I used the tax ID to file 1040NR 6 years ago due to a US contract.
I have not had US contract for 4 years.

1. Should I use the personal US tax ID or Canadian SIN in W8BEN?

2. From nelsona and JGCA's comments in this thread, I was under the impression that I don't need to file US corp tax unless I cross the 183 days limit. I am a bit confused now. So, it is still a better practice to file US corp tax even if I stay under the 183 days limit?

3. My accountant is retiring. Any recommendations or connections for getting an accountant who has expertise on this area?

4. What is the min cost should I be looking at to file 1040NR and US Corp tax (1120F) via a competent accountant?

JGCA · Post by **JGCA** » Sat Feb 25, 2012 2:47 pm

You would be filing essentially a NIL 1120F claiming protection under treaty that you do not need to file a 1120F with any amounts as per treaty, I file these for clients cost is about $1,000 if you want e-mail me for details