Ask a cross-border International real estate rental
mutual funds immigration non-resident income tax
expert - David Ingram 's CE-NTA Services in North
Vancouver BC Canada on It's Your Money CKBD AM600 Fred
Snyder's Radio Show
Mr. Ingram,
Thank you very much for your response. Your reply
has raised a couple more questions. I would like to
give you a more detailed explanation of our client's
situation for, hopefully, a more detailed response.
I do need to let you know that I work for an
accounting firm in Bellevue, WA. A former client has
returned to us asking for our assistance on this matter
and through my research on the web I came across your
website. Our client's situation is not something
anyone in our office has ever dealt with before and
thus want to make sure our client is given the correct
information. I understand that you are also in the
business and would like the work. We would be more
than happy to give our client your name and number to
handle the Canadian tax return if this work situation
works out for them.
Our client became a landed immigrant in Canada a
couple of years ago. Her husband received a H1 visa to
work for a company here in the Seattle area. She was
only able to acquire a H4 visa. She was recently
offered a well paying job by a US company for the next
couple of months. She spoke to immigration and then
retained an attorney in Canada where she was told that
she could take the job, but would have to perform the
service in Canada to work around her H4 status. I do
not know if she could prove that she is not taking away
a job from a person in the US who is able to legally
work in the US. She has kept a residence in Canada for
the last year.
My new questions are this:
1) Given the information above, do you see any
problem with the arrangement she trying to make with
the US company?
2) Could you please explain your last paragraph
regarding the 'interesting tax situation'?
I appreciate your help in this matter.
Thank you,
XXXXXXXX
===============================
david ingram replies:
1. As long as your client physically performs all
the work in Canada, she is legal. That means "NOTHING"
done in the USA. Working in Canada and filing the
Canadian Tax return will also help her prove her time
in Canada to keep her Canadian Permanent Residence
Alive. Otherwise she could find herself being evicted
from the states if her husband's H1 is cancelled or he
loses his job four years from now and she will not be
allowed back into Canada and have to go through the
whole sponsorship process again.
The US company should NOT withhold any US Federal or
Medicare or FICA taxes because she is NOT going to be
performing any services in the USA. If they wish to
issue a slip to her of some sort, it could be a 1042S
or even a W2 with no withholding and an explanation.
Ideally, they would set up a payroll account in Canada
and deduct Canadian taxes, Canada Pension Plan, etc.,
but that is silly for a one or two month job and maybe
even for a long term when it is so easy for your client
to be self-employed in Canada and it is to her benefit
to be in that position.
2. It is interesting because of the above. The
Canadian income will go on the joint US tax return as a
schedule C and you will claim foreign tax credits on US
form 1116.
Another problem will be US social Security. As a
resident of the US, self-employed in Canada, she would
owe FICA as a self-employed person exempt from Canada
Pension Plan under Article 5 or 6 of the US / Canada
Social Security Totalization Agreement. However, we
would "want" to show her as a resident of Canada for
Canadian Immigration purposes. Therefore, your client
will be paying Canada Pension Plan to Canada and not .
If this is your first attempt and likely the only one,
I strongly suggest that you do not even attempt the US
part of the return. Have us do the whole thing and
transfer the figures to your own database. It has been
my experience that you will take (waste) 30 to 40 hours
trying to figure it out and still stand a good chance
of making an embarrassing error. And try and bill for
30 hours in the middle of tax season. Our bill would
be about $1,000 Canadian - $800 US and it is out of
your way. Even if you "lose" money on this year's
transaction, it will be worth it to you to keep your
client, keep your client happy, and have all of those
hours available to look after work that you are set up
to do.
Your client is a typical one for this office.
copied to: George Arora, MBA, CPA, MST (Masters in
Taxation)
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