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I am a Canadian in the US on an H1-B visa and I have several questions.
To date I have only filled US tax returns. If I would like to do some consulting work (in the US and in Canada), what should I do from a tax perspective with the income. Since the work, from my perspective (reviewing documents etc) can be done either in Canada or in the US, is there any advantage of one over the other. I am considering setting up a company to do this kind of work - any advantage from a tax perspective over where this company is incorporated.
I am also in need of cash to pay some credit card debts - I have some Canadian Savings Bonds and RRSPs - what would I need to do if I cashed these.
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david ingram replies:
1. You cannot do any consulting work of any kind in the USA. You can lose your H1-B for doing so. You can do all the consulting work you want for Canadian companies.
2. The money is taxable in the US no matter where you do the work and will form part of your US return.
3. If you have no fixed base in Canada, but you do the work in Canada, the income should be reported to Canada and exempted under the treaty OR simply pay tax to Canada which would be cleaner and neater and claim a foreign tax credit in the US.
4. Your CSB interest should have been reported on your US return for as long as you have been in the US.Internal earnings on your Canadian RRSP should have been reported annually on your US return but can be exempted. See the August 2003 newsletter at www.centa.com
When you cash in the Canada savings bond there is no Canadian (as a non-resident) but the interest is taxable on Schedule B of your 1040. When you cash in the RRSP, Canada will tax you 25%. You then have to calculate the blended amount to find how much was internal earnings. The internal earnings are taxable in the US from the date you entered the US. However, you can claim a foreign tax credit on a pro-rated basis for the tax paid to Canada.
You should likely send the return to us in Vancouver. We accept returns by email, snail mail, fax or courier.
David Ingram's US/Canada Services
US / Canada / Mexico tax and working Visa Specialists
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