Employee or Contractor for Canadian working in USA?

[daryl]

I am a Canadian citizen, Canadian resident and a full time employee of a Canadian company. I have had TN status as an engineer for the past few years to support the operations of a USA-based subsidiary of my employer on a part time basis. (For the past few years, I have spent approximately 90 days in the USA each year.)

I am considering leaving my current employer to work full time for a USA-based company. If I do that, I would continue to reside in Canada but my work would be partly in the USA, partly in Canada and partly international. I have been advised that for tax reasons, it would be preferable for me to incorporate my own company in Canada and enter into a personal services contract with the USA-based company. I would be an employee of my own Canadian company, which would invoice the USA-based company for services rendered and for expenses incurred rendering the services. The advice I was given suggested that my wife and I would be able to receive income from the corporation as dividends (thus sharing income at a lower marginal tax rate). It was suggested that on the basis of my permanent fixed establishment being in Canada, I would not have to pay US taxes.

After reading the tax treaty and specifically the 5th protocol, I am doubting that what I was told is correct. My understanding is that I would have to file a USA tax return and pay taxes on the portion of the income that was received for services rendered in the USA. How that would work if it was employment income seems pretty clear, but I am less clear if the services were done through a company. Would the company have to file the tax return or me personally or both?

[nelsona]

I believe it would come down to how many day per 365-day period you spent in US.

Clearly your company's income would be considered mostly from US sources, so the next threshhold is the comapny's emloyee spending 183 days in US in any given 365 day period.