# Working remotely for us company tax issues



## canadian81 (Jul 2, 2017)

I am a Canadian Resident working remotely for USA company (permanent) on W-2 in TN status. My payroll is run in the USA. My actual work location is in USA. I initially worked 70% of time from USA but last year I worked 90% from Canada (as I gained confidence of my manager). As I am more than 183 days out of USA and my employment income comes from a USA based company, my employment income will be taxable in USA (based on Canada-USA tax treaty, my employment incomes comes from a permanent establishment of a company in USA , I would be taxable in USA only). Am I correct?


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## james4beach (Nov 15, 2012)

As a Canadian resident, you have to file the Canadian tax return and also report your worldwide income. That means you must report all income you get from the USA as well.

See: http://canadianmoneyforum.com/showthread.php/117154-RRSP-room?p=1633906&viewfull=1#post1633906


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## AltaRed (Jun 8, 2009)

The US-Can tax treaty determines residency for tax purposes. Part of it is the 'substantial presence test' in USA and part of it will be related to where you own a home or have a signed lease on an apartment, health insurance, driver's license. A cross-border accountant is needed to determine residency, but in either case, you have to report your full worldwide income in the country in which you are a tax resident. 

For last year, I would agree with James that it seems like you are a tax resident of Canada and must report all worldwide income. Your US 1040NR will avoid double taxation. You need a cross-border accountant to do these tax returns properly.


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## james4beach (Nov 15, 2012)

AltaRed is right, and you will need a cross-border tax expert. Everyone's situation is different.


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## canadian81 (Jul 2, 2017)

Thanks everyone for your replies. My employment taxes will be deducted in USA and I file Canadian taxes as a resident and claim foreign tax credit for the us employment taxes on my Canadian tax returns.

Does it matter that I work 90% remotely (from Canada) for my US employer? Would CRA ask me to pay taxes on my employment income?


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## AltaRed (Jun 8, 2009)

If Canadian taxes are higher than US taxes, then you will pay additional Canadian tax on your US employment income. The tax returns have to be completed to determine the effect. It is worldwide income that must be reported on your Canadian tax return if you are a tax resident of Canada (or similarly in the USA if a tax resident of the USA). Because much of your tax withholding is done in the USA, this is why it is critical that you engage a cross-border tax accountant. I imagine your USA employer is also deducting FICA taxes? You are additionally paying CPP and EI in Canada? There is no simple answer!


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## Eclectic12 (Oct 20, 2010)

canadian81 said:


> ... As I am more than 183 days out of USA and my employment income comes from a USA based company, my employment income will be taxable in USA (based on Canada-USA tax treaty, my employment incomes comes from a permanent establishment of a company in USA , I would be taxable in USA only). Am I correct?


As a Canadian tax resident working in the US - I had to report on my US tax return the US employment income *and* report the US employment income on my Canadian tax return the US employment income.

Your wording of "taxable in the US only" makes it sound like the income is reported on one return only ... which is not the way it worked for me.


From what I recall of the briefing from the company provided tax expert - had I worked in the US long enough to trigger the Substantive Presence Test (SPT), without claiming tax treaty rights - the US would have expected my US tax return to include my Canadian investment income as well as employment income (i.e. both returns would have had to report worldwide income). When that happened, I was supposed to claim a closer connection to Canada to avoid reporting the rest of the world income.


Keep in mind that the SPT also includes prorated numbers for the two years before the year in question (i.e. 2017's calculation includes prorated 2016 and 2015 time in the US). The threshold may be lower than one expects (as low as 121 days).


As others have said - consulting an expert is a good idea as it is easy to miss claiming a tax treaty right then having a complicated process to figure out the issue then fix it.


Cheers


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## canadian81 (Jul 2, 2017)

I spoke with a CRA agent who is expert on Foreign income for Canadian residents. She agrees with what I said above. It does not matter how long I am present in Canada if I am working for a US employer.

My US employer is deducting all payroll taxes including FICA.


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## Eclectic12 (Oct 20, 2010)

canadian81 said:


> ... Does it matter that I work 90% remotely (from Canada) for my US employer?


Your tax residency is your tax residency ... which is where the worldwide income should be reported. There may be paperwork to file to claim treaty provisions which ensure that the other country doesn't see you has being their tax resident as well, which would mean reporting worldwide income in two countries.




canadian81 said:


> ... Would CRA ask me to pay taxes on my employment income?


My understanding is that it depends. If the US taxes are larger than the Canadian one where the tax treaty provisions are properly claimed - then no Canadian taxes will be assessed. 

My experience when working in the US was that the final US taxes were lower so that on paper, I would have owed Canadian income taxes. I had made RRSP contributions that took care of the difference so instead of owing $$, I received a tax refund.


The company provided tax expert talked about the SPT plus how to remedy being classed as a US tax resident that reports worldwide income but the project ended up being canceled before I met the test. The US tax return ended up being easier as the tax treaty provision did not have to be claimed.


Cheers


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## AltaRed (Jun 8, 2009)

I agree with Eclectic12. I've spent time working in the USA over my 30+ year career both on L Visas (clearly a tax resident of the USA) and single status TN (tax resident of Canada sometimes and other times USA). 

US employment income has to be reported on both tax returns. And a key point from Eclectic12 is the substantial presence test is a 3 year formula (100% current year, 2/3rds prior year and 1/3rd year before that). The OP simply cannot work the tax returns on his/her own since s/he will likely miss tax treaty items AND things like FICA, CPP, EI mess it up. But one thing is clear... the actual employment income must be reported on both tax returns....and overall worldwide income on the tax return for the country in which the OP is a tax resident of. The foreign tax credit will take care of double taxation in most cases. No use arguing otherwise... It is what it is.


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## canadian81 (Jul 2, 2017)

Thanks everyone.


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## canadian81 (Jul 2, 2017)

I spoke with one more CRA agent who specifically deals with Foreign income for Canadian residents. He also agreed with what I mentioned. Since my contract of employment is for USA, I am first taxed in USA and it does not matter if I worked all 365 days from Canada


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## AltaRed (Jun 8, 2009)

canadian81 said:


> I spoke with one more CRA agent who specifically deals with Foreign income for Canadian residents. He also agreed with what I mentioned. Since my contract of employment is for USA, I am first taxed in USA and it does not matter if I worked all 365 days from Canada


That may be the case but you still have to declare all of your US employment income on your Canadian tax return. . That is the point you have not yet acknowledged and what a cross-border tax accountant will sort out. The tax treaty determines who (CRA or IRS) has first dibs on your source withheld income taxes on employment earnings. In 2000 and 2001, that was the exact case for me. Both CRA and IRS laid claim but my cross-border tax accountant sorted out via tax treaty who had first dibs.


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## canadian81 (Jul 2, 2017)

Yes, I will declare all my US income on my Canadian returns and claim Foreign tax credit for my US taxes on my Canadian returns.


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## Eclectic12 (Oct 20, 2010)

canadian81 said:


> I spoke with one more CRA agent who specifically deals with Foreign income for Canadian residents. He also agreed with *what I mentioned*. Since my contract of employment is for USA, I am first taxed in USA and it does not matter if I worked all 365 days from Canada


It would help if you could outline what is included in "what I mentioned" plus where you see disagreement with what had been written.

What is confusing is that the parts about "first taxed by the US" or "does not matter if I worked all 365 days from Canada" are being repeated with CRA's response as confirmation. AFAICT, everyone has been agreeing with these two statements thoughout the thread.


Cheers


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## canadian81 (Jul 2, 2017)

I heard different opinion on another forum. So I had to reconfirm what I thought.

Yes, everyone on this thread agreed with what I said.


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## Eclectic12 (Oct 20, 2010)

Makes far more sense to me now .... :biggrin:

My speculative guess is that the person who thought this way was confused with someone emigrating to Canada versus someone like yourself who has maintained ties to Canada that likely makes one a Canadian tax resident. 


Cheers


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## james4beach (Nov 15, 2012)

Just remember that one country (either Canada or US) must be your 'tax home'. All worldwide income, whether that's employment, bank interest, dividends, etc, must be reported to whichever country is your tax home/residency.


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## canadian81 (Jul 2, 2017)

Sure. Thanks


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## Eclectic12 (Oct 20, 2010)

I would also add that where one has maintained their tax residency in Canada, where the US SPT says one should report worldwide income - filing the paperwork to claim a closer connection to Canada will reset the US tax return income to just US based income (ex. the employment income) instead of worldwide income.


There have a a lot of changes since I worked in the US where the US is looking for more money so getting help from an expert is likely money well spent.


Cheers


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## canadian81 (Jul 2, 2017)

Thanks


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