US Self Employment Tax

[Peter G Hamilton]

I am a Canadian resident and a dual taxpayer. Age 67, receiving US Social Security and a very small CPP payment. I earned 7,000$US in 2005 as an advisor to a US company.
-Is it correct that I do not pay sel-employment tax to the US on the $7,000? (and only pay income tax to Canada)
-If so do I override the 1/2 SE tax shown by my tax program on 1040, lines 27 and 36?
Peter

[nelsona]

You should be exempting the income using 2555, thus avoiding SE tax.

If you cannot use the exemption, then you need to obtain a certificateof coverage from CRA attesting that you are paying Cdn CPP on this income.

[nelsona]

Since it is not lilkely that your US consulting is exempt (unless you performed the work in Canada, if you wnt to avoid SE tax then you will need a certificate of compliance from CRA.

http://www.ssa.gov/international/Agreem ... anada.html

[Peter G Hamilton]

Am I correct in assuming that the Self Employment Tax I pay to the US will be a FTC on my Canadian return. If this is the case then the easiest thing is to fill the SE statements and the Schedule C (Easy to do with my US tax program). Then pay the SE tax to the US and then take a FTC on my Canadian return.

Peter

[nelsona]

Ordinarily I would say yes, but remember that CRA is only required to give you foreign tax credit for uS taxes (a) are legally owed, and (b) that would ordinarily be paid by a NON-US citizen.

CRA could argue that (a) since you live in Canada, and were not an employee of a US company, are not subject to US SS tax, and (b) would DEFINITELY not have had to report and pay tax on this income in US if you weren't a US citizen, thus any US tax arising from it simply because you were a US citizen would not be eligible for FTC.

Because of the bother involved in getting a compliance letter from CPP/QPP (and the need to attach it to your 1040), I would go ahead and pay the SE tax and claim it on your Cdn return FTC.

But if this is going to be an ongoing practice for you, I would be securing that letter, and being prepared to amend my returns in case of dispute.