Treatment FAQ

tax treatment for canadian who cross borders for work

by Tatum Schoen Published 1 year ago Updated 1 year ago
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Where an individual moves from their home country to Canada for a temporary work assignment and continues to participate in a social security arrangement in the home country in connection with their employment, the CRA will treat contributions made by or on behalf of the individual to a social security arrangement 5 the same way for tax purposes as contributions made to the Canada Pension Plan (CPP) or the Quebec Pension Plan (QPP) 6 if there is a provision in the tax treaty that allows social security arrangements to be recognized.

Full Answer

Are You dealing with a different tax law when working cross border?

This might sound like an incredibly juvenile statement for a website read by professionals but when it comes to tax law, many cross border workers forget that they are dealing with an entirely different set of tax laws when they work in another country.

Why choose our cross border tax planning services?

Our team of cross-border tax planning professionals will assist you in implementing and developing an efficient cross border strategy. They work with you to legally and successfully reduce your tax liability in the U.S. and Canada to support your cross-border lifestyle.

Can I minimize my cross border taxes before the April deadline?

When working across the border in Canada or the US most people do not think to learn about what they can do to minimize their cross border taxes before the April filing deadline. Be proactive and learn what you can do ahead of time to save on your cross border taxes. Learn the common mistakes tax mistakes so you can be sure to avoid them.

Can a Canadian work in the US and pay US taxes?

Under the Canada-United States Income Tax Treaty (the “Treaty”), the United States also has the right to tax a Canadian resident working for an employer in the United States on their employment income if their employment duties were performed in the United States and they earned more than US$10,000 from employment in the United States.

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Background

The CRA issued new filing guidance and extended relief measures for individuals affected by travel restrictions on April 1, 2021.

Canadian cross-border employee relief extended

The CRA now says it will generally extend its 2020 administrative reporting relief for affected Canadian-resident individuals to the 2021 tax year.

KPMG observations

Individuals should be aware of potential timing issues when filing a CRA relief request. For example, individuals must wait for the IRS to process their U.S. tax filing before they can request a U.S. account transcript, and it may be several more weeks before this transcript is received. As a result, individuals should ensure they file their U.S.

What is the purpose of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion

The purpose of the MLI is to implement treaty-related aspects of the Organization for Economic Co-operation and Development (OECD) Base Erosion and Profit Shifting (BEPS) project without needing to update or renegotiate individual tax treaties. In executing the MLI, Canada listed the majority of its existing tax treaties as ‘covered tax agreements’ that would be subject to the MLI’s terms. For certain other tax treaties, Canada has indicated that it would consider implementing certain measures through bilateral negotiations with those countries. Note that, unlike Canada, the United States has not signed onto the MLI and, as such, the MLI will not impact the Canada-US Tax Treaty.

What is indirect tax in Canada?

Indirect taxes (Value Added Tax and provincial sales tax) Canada has a federal Value Added Tax (VAT) known as the goods and services tax (GST). GST is a 5 percent tax levied on the supply of most goods and services in Canada.

What is BTB in Canada?

The Canadian ‘Back-to-Back ’ (BTB) rules address back-to-back arrangements with respect to debt and non-resident WHT on interest . In general, these rules target arrangements where an intermediary is interposed between two non-arm’s length taxpayers in order to achieve a lower rate of WHT than would have otherwise applied if the loan were made directly between the two taxpayers. The BTB rules were expanded in their application after 2016 to apply not only to BTB loans but also to certain equity/royalty arrangements used in their place. If the BTB rules apply, both the thin capitalization room and WHT would need to be recalculated.

What is branch tax?

The use of a branch to acquire assets of a target company yields similar results to forming a Canadian company, assuming the acquisition creates a permanent establishment in Canada. The rate of federal and provincial income tax is approximately the same for a branch as for a Canadian corporation. In addition, a branch tax generally is imposed on profits derived by non-resident corporations from carrying on business in Canada and not reinvested in Canada. The branch tax parallels the dividend WHT that would be paid if the Canadian business were carried on in a Canadian corporation and profits were repatriated by paying dividends to its non-resident parent. Accordingly, the branch tax base is generally intended to approximate the after-tax Canadian earnings that are not reinvested in the Canadian business.

When does the MLI start in Canada?

Depending on when Canada’s covered treaty partner deposits its instrument of ratification with the OECD, the MLI may enter into effect for that treaty as early as 1 January 2020 for withholding taxes and to taxable periods beginning on or after 1 June 2020 for all other taxes, including capital gains.

What are the transfer pricing rules in Canada?

Canadian transfer pricing rules require a taxpayer transacting with a non-arm’s length non-resident to use arm’s length transfer prices and terms, and comply with certain contemporaneous documentation requirements. Failure to use arm’s length transfer prices may result in a transfer pricing adjustment and penalties, including penalties for insufficient contemporaneous documentation.

Is interest expense deductible in Canada?

Canada has rigid interest deductibility rules — interest expense is not automatically deductible. Interest is deductible for Canadian tax purposes if it is paid pursuant to a legal obligation to pay interest and relates to:

What is the T1135 form?

When you own foreign investment property that was worth more than $100,000 at any point during the year, you need to complete and file Form T1135 with your income tax return. Individuals, corporations, partnerships and trusts must complete this form if they own this much foreign investment property.

What is foreign investment property?

Foreign investment property that must be reported on your Form T1135 includes any funds that you hold in foreign bank accounts, shares of foreign companies that you own, interest you hold in non-resident trusts, and bonds and debentures you hold that were issued by foreign governments, to name a few.

Do you have to file a T1135?

You must complete Form T1135 for any taxation year that you have foreign properties. If you forget to file this form you may be able to claim a Voluntary Disclosure to avoid paying any stiff penalties. If you are doing this, make sure you include Form T1135 along with the VD form, from any previous year you may have forgot.

Does T1135 apply to 2017?

Part B of the T1135, the detailed method, will still apply to taxpayers who held specified foreign property over $250,000. Additionally, individuals can file form T1135 electronically along with your tax return through NETFILE for 2017 and subsequent taxation years.

How much of the gross proceeds are withheld in California?

An additional 3.33% of the gross proceeds will also usually be withheld for state tax purposes in California. These withholding requirements could substantially reduce the amount of money you receive at closing when you sell your U.S. property. And this could significantly affect your cash flow.

What percentage of property taxes must be withheld?

Specifically, the Foreign Investment in Real Property Tax Act (FIRPTA) requires that either 10% or 15% of the gross proceeds of the sale be withheld and remitted to the IRS.

Who charges and collects GST/HST?

Who charges and collects the GST/HST. What types of supplies are taxed. What rate to charge. Once you have registered for the GST/HST as required, you are required to charge and collect the tax on the taxable supplies that you make in Canada. The rate of tax that you are required to charge and collect on those supplies is based on the place ...

What is a Canadian indicator?

A Canadian indicator of your customer is an indicator obtained in connection with the supply that reasonably supports the conclusion that the usual place of residence of your customer is situated in Canada.

What is non-resident architect?

A non-resident architect who is registered under the simplified GST/HST regime makes a supply of an architectural service to a Canadian consumer who lives in Ontario. The service relates to real property that is situated in Ontario. The architect performs the service entirely outside Canada.

What is CRA certification?

This program stems from legislative changes proposed by The Department of Finance in 2015 providing relief from Canadian payroll tax withhold ing to ‘qualifying non-resident employers’ on remuneration paid to ‘qualifying non-resident employees’ for employment duties rendered in Canada.

Is LLC taxed in Canada?

An LLC doing business in Canada is taxed as a regular corporation in Canada, and thus has to pay income tax on their Canadian-sourced profits and branch profits tax, which is equivalent to dividend withholding taxes, on the remittance of such profits to the U.S. owner. Prior to January 2010, the Canada Revenue Agency took the position ...

Do non-residents pay taxes in Canada?

resident companies, however, our income tax treaty with Canada provides some relief from these broad rules. Exporters that only sell cross-border and other businesses that have only a limited presence often can claim exemption from having Canadian activities within the treaty provisions and therefore not pay any Canadian income taxes on such activities.

Is Canadian income tax creditable?

or other foreign corporation are subject to income tax in Canada. The income tax paid in Canada is creditable (i.e. allowed as a credit dollar for dollar) against your U.S. income tax on that same income.

Is a non-resident employee exempt from 102 withholding?

A Certified Non-Resident Employer is exempt from Regulation 102 withholding obligations for qualifying non-resident employees. Under the new certification program, exemption is not tied to a specific employee or employees, allowing greater fluidity in meeting the staffing needs of a project.

Do you have to file a tax return to claim the treaty exemption?

No, you are not automatically protected by the treaty. There are compliance costs. To claim the benefit of the treaty exemption, you must file a Canadian tax return providing details of your operations in Canada and disclose the basis for your treaty exemption.

Plan Ahead to Save on Your Taxes

Cross Border tax is real and if you don’t plan for it, you will likely pay more taxes. When working across the border in Canada or the US most people do not think to learn about what they can do to minimize their cross border taxes before the April filing deadline.

Blunder 1: The US and Canada are Foreign Countries

This might sound like an incredibly juvenile statement for a website read by professionals but when it comes to tax law, many cross border workers forget that they are dealing with an entirely different set of tax laws when they work in another country.

Blunder 2: Filing Cross Border Taxes Separately

Many cross-border workers do not recognize the impact that residency has on income tax. As mentioned earlier, the nation in which you maintain your residence has the primary right to tax all the income that you earn whether within its borders or outside of its borders.

Blunder 3: Maintaining Proper Residency Status on Your Tax Return

Only a small number of US tax professionals regularly deal with cross border tax issues. The same can often be said for many Canadian tax professionals.

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