Extended Stay in USA, Will the 183 Day Rule Apply?

[cdntax]

I am a Canadian citizen working as a consultant with a business incorporated in Ontario Canada. While doing work for USA clients I file a W8BENE form with the IRS and use a TN visa for any on-site visits required.

This arrangement has worked fine in the past as I only enter the USA for brief periods to attend meetings etc... However this year with the pandemic I am trying to reduce risk from traveling and just stay down in the USA closer to clients. MY question is would the 183 day tax residency rule apply to me if I stayed over 6 months? If it does apply is there any exemptions/waivers I could use?

Thanks for any advice!

[nelsona]

You would need to check with IRS. CRA has issued guidance, since residency is an important issue for Cdn taxation.

It is not such a big issue for IRS, and since it only narrowly applies in certain treaties, I doubt that IRS has published any guidance.

The 183 day rule for RESIDENCY, is easily overcome by filing a 1040NR and in the spaces provided, prove that youa re still a Cdn resident, eevn though your meet SPT.

However, you face another issue, because of your self-employment, you are coming up against the 183-day rule for creating a permanent establishment in US, which occurs if you are in US for 183 days in ANY 365-day period.

If that occurs, you simply include the self-employed income earned in that period and in that calendar year, on your US 1040NR, but only that income. The income is US-sourced, so you would claim the tax as a foreign tax credit on your US return. You would need to check with the state you are living in if you would need to report that income in that state, but I'm presuming you would. You would NOT however need to pay SE tax (ie. the social security tax imposed on self-employed income) becuase you live and pay CPOP in Canada.

[nelsona]

CPP not CPOP.

[cdntax]

nelsona wrote:
> You would need to check with IRS. CRA has issued guidance, since residency
> is an important issue for Cdn taxation.
>
> It is not such a big issue for IRS, and since it only narrowly applies in
> certain treaties, I doubt that IRS has published any guidance.
>
> The 183 day rule for RESIDENCY, is easily overcome by filing a 1040NR and
> in the spaces provided, prove that youa re still a Cdn resident, eevn
> though your meet SPT.
>
> However, you face another issue, because of your self-employment, you are
> coming up against the 183-day rule for creating a permanent establishment
> in US, which occurs if you are in US for 183 days in ANY 365-day period.
>
> If that occurs, you simply include the self-employed income earned in that
> period and in that calendar year, on your US 1040NR, but only that income.
> The income is US-sourced, so you would claim the tax as a foreign tax
> credit on your US return. You would need to check with the state you are
> living in if you would need to report that income in that state, but I'm
> presuming you would. You would NOT however need to pay SE tax (ie. the
> social security tax imposed on self-employed income) becuase you live and
> pay CPOP in Canada.

Thanks for your reply.

Just to clarify I pay myself in dividends from the Canadian corporation.

Does filing the 1040NR with US sourced income mean I would still only pay taxes in Canada as I currently do, or would I be paying the portion declared on the 1040NR to the IRS?

[nelsona]

Please don't use the quotes. It clutters the thread for nothing.

Any payment you get for the services you perform in US during the period in which your met the PE rules, you will need to report on your 1040NR as effectively connected income, and to the state if necessary

It will also have to be reported in Canada as that is your tax residence. Canada will credit your US tax against your Cdn tax.