Canadian Sub-contracting in the US - Completing 8233

[groovejungle]

I live in Canada and have been performing sub-contracting work as an Sound Engineer in the USA for about 10 years. The main company I sub-contract to has been deducting withholding, I have been filing and paying US taxes and taking Foreign Tax credits when filing my T1 in Canada. However, Canada Revenue has been reassessing me, and as a result I am not getting a proper Foreign Tax Credit and am essentially being double taxed to a certain degree.

I recently did sub-contract work for another US contractor and they had me complete an 8233 and did not withhold. I had sent that 8233 form to my main client many years ago, but they said it does not apply and would not stop withholding. It appears they are wrong and I need to put some pressure to stop the withholding, and I need to also start to use the tax treaty to avoid paying US Taxes so I am not double taxed (as I am now).

In my reading I see the Article XIV of the US Canada Tax treaty used to apply for "Independent Personal Services", but that Article has since been repelled and it seems it is now all based on whether one has a Permanent Establishment, or not.

I have an O1, O2, and P2 Visas, depending on who I am working for. I usually spend about 120 days/year in the USA, but that also includes a day for air travel on each side of the work (if I work 1 show, I am in the USA for 3 days), so I imagine I do not have a Permanent Establishment situation.

In reading this website ([url]http://www.serbinski.com/taxation-in-us ... ts.shtml#b)[/url], it looks like I need to:
- get the contractor to stop taking withholding by providing a completed 8233
- continue to file the 1040NR, showing zero taxable income, and include an 8840 with it
- continue to file a Canadian T1, but no longer ask for any Foreign Tax Credit
- complete a CPT56 and file with Canada to avoid social security taxes in the US

Is the above basically it?

On the 8233, what do I show as the Tax Treaty Section that applies (12b), and how do I complete the compensation section (11a) at the beginning of the year if the sub-contract work available, and therefore the $ value, ever changing?

Any suggestions on how to get the contracting company to understand and listen to the 8233 and not withhold (the business manager is less than cooperative)?

Thanks for any help/insight you may have![/list][url][/url]

[groovejungle]

Also, does the 8833 "Treaty-Based Return Position Disclosure" form have to be filed?
[url]https://www.irs.gov/pub/irs-pdf/f8833.pdf[/url][/url]

[nelsona]

Everything you say sounds right. On the 8233 simply put the highest estimate. Some treaties have a dollar limit above which you are no longer exempt. US-Canada does not have such a limit, so it doesn't really matter.

You should not be claiming foreign tax credit in Canada since this income should not be taxed in US at all. Nor should you be paying any sort of FICA or self-employment tax.


You are exempt. You do not need an 8833 if you are filing 1040NR and 8840, since the information you provide on these forms makes it clear that you are using the treaty.

One thing to keep in mind is that with the latest treaty, the 183-day limit which would kick you into a permanent establishment is a ROLLING 365-day period. So 120 days in the end of one year can easily turn into 183 days in a rolling 12-month period. Be careful about this.
Also make sure that no one puts you on payroll as an employee, as although you probably would claim no income tax if it is less than $10K in wages, you would be subject to FICA on those wages.

[groovejungle]

Thanks for the reply!

I am not sure how to fill out the part II of the 8233, specifically section 12a(Tax treaty and Treaty Artical on which you are basing exemptiojn from withholding)), and section 14(Sufficient facts to justify the exemption from withholding claimed on line 12 and/or line 13).

I would not want to get something incorrect, because the US contractor is being difficult and does not want to stop withholding, so I need to dot my "i's and cross my "t"s.

[nelsona]

I think from your initial post you have the savvy to figure this out.

[groovejungle]

Wish I did, but when it comes to the IRS I don't want to guess, especially with all the confusion I have come across on this topic. Hoping someone knows.

[nelsona]

quoting you:
In my reading I see the Article XIV of the US Canada Tax treaty used to apply for "Independent Personal Services", but that Article has since been repealled and it seems it is now all based on whether one has a Permanent Establishment, or not."

Get the current copy: Business income and Permanent establishment.

"I usually spend about 120 days/year in the USA"

and you are A Cdn resident getting contractor income and have no fixed base.

I try not to fill out forms for posters.

I can'r help you with a belligerent contractor however.