The issue revolves around the fact that tax laws and treaties were established many years ago and haven't considered remote working scenarios. Consequently, Canada Revenue Agency (CRA) agents may interpret these outdated tax laws in ways that can be challenging for remote workers.
In cases where a U.S. employer doesn't have a physical presence in Canada, they often engage third-party payroll companies to serve as the Canada Employer of Record. The problem arrises when they don't use these payroll services for remote workers as I explain below.
Article XV of the 1980 US-Canada Tax treaty states that the country whose employer borne's the remuneration, that country has the right to tax the income, regardless of the time spent working there. If a U.S. company is paying you and is claiming deduction on their tax return(which every company does, they claim your salary as operating expense), the US and thereby IRS has the right to tax you. so you can't ask for IRS not to withhold the taxes and neither can you claim refund based on tax treaty. Ideally you should file US taxes first and claim Foreign tax credit on your CRA return which according to treaty pretty much says US has the right. This is what people who regularly travel to US do. However there is also a Canadian tax law which states Foreign employer hiring a Canadian resident who only works in Canada has to withhold taxes and remit it to CRA. Due to this, CRA audits these remote workers claiming you should first file Canadian taxes. I am not a tax accountant but probably it would work like this, Pay taxes to Canada and then file 1040 or 1040 NR with IRS where you will mention your income and will attach CRA tax return to claim Foreign tax credit and ask for refund from IRS. So refund is based on tax paid to Canada. IRS should refund you back the taxes which were withheld.
However, if you travel to the U.S. for a few days for work purposes, CRA cannot require your foreign employer to withhold taxes for Canada during that period because you are performing work in the U.S. In this scenario, the tax treaty from 1980 specifies that the U.S. has the primary right to tax. This situation is more straightforward because the laws are well-established.
In summary, tax laws can be highly complex, and the assumption that you only need to pay taxes in one country based on a specific number of days of residence (e.g., 183 days) doesn't always hold true. The interplay between tax treaties and national tax laws can result in intricate tax situations for remote workers.
Note: If you truly want to work remote, then we can work as independent contractor on 1099. You can submit form w8-BEN and no taxes will be withheld by IRS. Or go with C2C.
