Self-employed Canadian Considering US employment

[testerman005]

Hello,

I am a Canadian citizen, currently living in Ontario, and have been interviewing with a local company, and an American company (California).

Here is the twist: I have recently incorporated my own business here in Canada (recently -- no revenue, just registration and some expenses). While it is most probable that the source of income will be in Canada, it could also be international, US included.

In anticipation of possible job offers, I would like to be able to compare and evaluate both offers, taking tax implications into account AND explore options that can be done with the business.

In the event that I choose to relocate to the US on a TN visa, I could:

1) Maintain resident status in Canada in order to keep my business Canada-based -- however at the expense of double taxation on employment income (assumed to be Canadian taxes that would be due on the equivalent of the US income converted to CDN currency) AND US taxes on any income from the business, regardless of source (as I would be considered a resident alien in the US).

2) Sever ties with Canada, and relocate my business to the US. This would save me employment income tax dues to Canada AND business income tax dues to Canada??

3) Any other ideas??

I apologize for lack of numbers, and I realize that that could sway my decision for one or the other, but I am looking for insight and confirmation that I am interpretation my situation properly. However I do expect a better offer from the American company (cost of living aside) and would also expect employment income taxes to be lower in California as compared to Ontario.

Thanks!

[nelsona]

Do realize that you can go to US on TN as a contractor; you are not limited to being an employee of the US firm.

The flaw in your first scenario is that you cannot simultaneously "relocate to US" and "maintain resident status in Canada". The treaty would fall on one side or the other. In any event, US tax on employment income would be credited on your CDn return.

It makes no tax sense to greate a CDn company in order to work as an employee in US. Either go corp to corp or contractor, or simply be an employee resident in US.

I would think that the taxrate in California would be higher than Ontario on wages, when one includes FICA tax.

[testerman005]

Thanks for the quick response nelsona. You've challenged me on some points, let's get further into it..

I should clarify that the employment job is different from my business (not that is matters from an accounting standpoint), and that I hope to maintain both.

[quote]Do realize that you can go to US on TN as a contractor; you are not limited to being an employee of the US firm. [/quote]

I am not sure if the employer would be open to that arrangement due to the nature of the position, however I will inquire. By doing this it, it appears to make more sense to relocate my business to the US?

[quote]The flaw in your first scenario is that you cannot simultaneously "relocate to US" and "maintain resident status in Canada". The treaty would fall on one side or the other. In any event, US tax on employment income would be credited on your CDn return.[/quote]

I thought this was possible, since:
-For the US it is clear that I would be residing and working fulltime and would be considered a resident alien
-If I keep my business in Canada, I am no longer able to sever ties to Canada

I've used the following article as my source of info http://www.americanlaw.com/ustxtmp2.html and it is stated: "it is quite possible for an individual to be resident in more than one place at the same time for tax purposes. "

However, at the end of the day, as you mentioned foreign tax credits would be used towards my Canadian tax return.

[quote]It makes no tax sense to greate a CDn company in order to work as an employee in US. Either go corp to corp or contractor, or simply be an employee resident in US.[/quote]

I failed to mention that employment and business are different type of work. Also worth pointing out that it is more probable that most of the source of income for the business is expected to come from Canada. Not sure if this matters, as the site mentioned above states that "Resident aliens are taxed in the United States on worldwide income." -- I am interpreting this as meaning it doesn't matter where my business is located??

[quote]I would think that the taxrate in California would be higher than Ontario on wages, when one includes FICA tax.[/quote]

Ahh yes, you seem to imply that FICA tax can be included in foreign tax credit?

Also, taking currency into account, 100K USD would be converted to ~127K CDN based on 2015 rates. From what I've read, taxes owed to Canada would be the difference between ontario taxes owed on 127K vs california taxes owed on 100K.

Thanks again!

[testerman005]

There are also corporate tax considerations for the business, but let's ignore that for the purpose of this discussion :)

[nelsona]

Why would you have a business and be an employee of another firm? You are still iable in both US and Canada for tax as an employee.

It would only make sense to have a business (in either country, doesn't really matter) if the US firm paid YOUR FIRM, and then you drew off a salary.

if you are paid as an employee in US, then your company has nothing to do with these wages. Is this business being set up for another purpose? So, I'm not understanding the purpose of this business.

[nelsona]

Assuming (If I re-read correctly) that his business you started had nothing to do with these job offers(it shouldn't) , then here is some issues you face:

1. If you become US resident, you cannot claim the CPCC status on that Cdn business.
2. Also, assuming you will be working on a visa, you cannot do "work" for this business while physically in US, especially with US clients. So this business idea will have some heavy restrictions and taxation.

3. A corp in Canada is NOT sufficient to maintain Cdn status, anymore than a Delaware-registered corp makes you a Delaware resident. You would by any definition be a Cdn non-resident.

I would suggest that you hold-off on this business until you decide which offer you are going to take, and then, if it is in US, whether your immigration restrictions will hamper the profitability of this venture (which would then be run fro ma US business).

[testerman005]

Thanks -- yes, the business is unrelated to the job offers.

1. Thanks for bringing this to light, I was not aware of this.
2. I did not expect this, this appears to be issues to work permitted by visa.
3. That is good to know, so a business in canada does not pose an additional tax burden on my personal US income tax.

Great, yes as you've mentioned I can just focus on deciding on job offers for the time being.

[nelsona]

2. Your work status is exclusive to your sponsor. You can perform work for yourself (or for a foreign entity) only if that entity has no US clients, and you are not benefiting from your physical location in US (ie work could have been done anywhere.

3. No, but the business it will be subject to tax in both countries. So whey bother with the Cdn shell.