US Tax for Canadians in US
Just like Canada, the US imposes taxes on non-residents as well. This mean that deeming your residency or citizenship in the US as a Canadian is important yet again. In the US, you are considered a resident if you pass the Green Card or the Substantial Presence Test.
- For Individuals
- For Canadians employed in the US by Canadian companies: If you are a Canadian resident who derives an income effectively connected* to any business or trade in the US through your Canadian corporation, that income will be subject to US tax filing and in some cases tax liability. This holds true for both employment and personal services rendered by employees of a Canadian corporation in the US (This is as per Article XV – “Dependent Personal Services”, of the Canada US Income tax treaty).
- For self-employed Canadians providing services in the US: As per the US-Canada tax treaty, a Canadian resident earning self-employment income in the US, this income is exempt from US federal taxation (note that this does not mean you are exempt from state taxation). This is strictly under the condition that this income was not generated through a Permanent establishment (PE) in the contracting state.
- Preventing Double Taxation
Canadian expats working or living in the US are taxed by both countries on their worldwide income, just like US expats in Canada. Depending on whether your income is derived from a business/trade in the US through a Permanent Establishment (PE) or not, you will be allowed to avail deductions on your US tax liability. Canadian residents are taxable only if their business income has a PE in the US connected to it. If they are deemed to not have a PE, Canadians still have to file their US tax return (including world income) but can claim deductions on their liability as per the Canada-US tax treaty. A Canadian resident is deemed to have a PE in the US if:
- they spent more than 183 days in the contracting state during which time more than 50% of their gross revenue was as a result of services rendered in that state.
- if their services were rendered for more than 183 days during any 12-consecutive month period with respect to a project.
Aside from deductions, Canadian residents can also avail Credit relief (Foreign Tax Credits) on their US earned Income by filing the Canadian T1 return.
Note: If you are a resident employer in one of these 2 countries, there are separate tax laws determining your taxable income, deductions and credits related to your business (corporations or pass through entities) outlined by the Tax Treaty. For US expat retirees in Canada, there are programs such as Canada Pension Plan (CPP) and Old Age Security (OAS) that provide retirement relief. Similar programs provide social benefits for Canadian expats.
As an international firm with offices in Houston and Toronto, our certified tax professionals can help you with US Tax compliance and tax consultancy for tax savings. We are here to help so contact us now.