Taxes/Payroll - Working in US/ Living in Windsor

[justinline]

Makes sense. Thank you for your input!

The CPA said that recently CRA's stance is this: since the economic activity is being performed from within Canada, even if it is for a US employer (For H1B remote from Canada), then the income is considered "Canadian Sourced", even if the employer has no presence in Canada.

So when we file with the US using 1040-NR we can exclude the income earned from working in Canadian soil (essentially get the tax refund because it is payroll deducted) and get the refund from IRS (which will be filed first)

Then we file with CRA claiming any FTC for taxes paid while working on US soil that is taxable in Canada due to tax resident status.

Now, if we work for X days from the US in a given Tax Year, we can claim those taxes paid for X days as FTC with because it is then not Canadian Sourced (but Canadian residents have to pay on Global Income: This is where FTC prevents double taxation)

You may ask, how is a US salary not considered "US Sourced". See this IRS link. For salaries and wages, our USD salary is considered "US Sourced" based on where the services are performed. So if you work from Canada remotely, then the income is not US sourced.

For commuters, what you are saying is 100% right. In that case, the "where" is on US soil as they commute to US and come back.

Actually this position CRA is taking is not recent one, even before Covid, I heard cases where CRA was not giving full credit of the taxes remitted to IRS, if they determine you are more of a remote worker. The question here is not who taxes you first rather who gets to collect all or the majority of taxes.

If you are daily traveller, you are are fine, you still file with IRS and then claim that as foreign tax credit in your CRA filling. But if you are more of a remote worker, this will be increasingly challenging. I say increasingly because, I personally know few cases who have done this in past without any issues.

Have you explored W8BEN
What Is a W-8BEN Form? (velocityglobal.com)

Basically that reduces withholding or create exemptions, then you remit that to CRA instead of IRS. Now if you already paid taxes as remote worker to IRS, you have to claim that back then remit to CRA. little more complicated.
US employer may be reluctant as well, because then they enter into employer-employee relationship with someone who is residing in a foreign country, besides taxes there are other consequences.

Best is to convert to contractor and not remain full time employee, saves every one headache, if you are planning to be fully remote.

 

[alabatross09]

Actually this position CRA is taking is not recent one, even before Covid, I heard cases where CRA was not giving full credit of the taxes remitted to IRS, if they determine you are more of a remote worker. The question here is not who taxes you first rather who gets to collect all or the majority of taxes.

If you are daily traveller, you are are fine, you still file with IRS and then claim that as foreign tax credit in your CRA filling. But if you are more of a remote worker, this will be increasingly challenging. I say increasingly because, I personally know few cases who have done this in past without any issues.

Have you explored W8BEN
What Is a W-8BEN Form? (velocityglobal.com)

Basically that reduces withholding or create exemptions, then you remit that to CRA instead of IRS. Now if you already paid taxes as remote worker to IRS, you have to claim that back then remit to CRA. little more complicated.
US employer may be reluctant as well, because then they enter into employer-employee relationship with someone who is residing in a foreign country, besides taxes there are other consequences.

Best is to convert to contractor and not remain full time employee, saves every one headache, if you are planning to be fully remote.

Yup, you are right @justinline! Filing 1040NR and claiming back from US is the approach.

The only lingering question is:
CRA mandates that all non-resident employers withhold CPP/EI and remit it to CRA for Resident and Non-Resident Canadians. (There are some exceptions to the Non-Residents but it is capped at 45 days so lets ignore it for now)

Link

Daily commuters fail the Substantial Presence Test because commuting days are not counted in USA. Hence, commuters are also US Non Residents and Canadian Tax Residents. As per CRA ruling, their employers should withhold Canadian Payroll Deductions as long as commuters are Canadian Tax Residents. (Obviously, remote workers have the same issue)

So technically, commuters should also have to have their employers withhold Canadian Payroll deductions simply because they are Canadian Tax Residents, right?

I am planning on being a fully remote worker on H1B from Canada beginning Jan 2025 (currently ensuring the legality before I make the move). The taxes were resolved after talking to CPA, (idea of clawing back from IRS seems complex but with professional help, seems doable)

The only legitimate concern is Payroll Deductions. This ruling affects not only remote workers but also commuters.
Any thoughts?
What if the remote worker commutes 1 week out of every 4 weeks to US location?

Assume a remote worker manages to file taxes without FTC, how to navigate the CPP/EI issue?

 

[justinline]

Yup, you are right @justinline! Filing 1040NR and claiming back from US is the approach.

The only lingering question is:
CRA mandates that all non-resident employers withhold CPP/EI and remit it to CRA for Resident and Non-Resident Canadians. (There are some exceptions to the Non-Residents but it is capped at 45 days so lets ignore it for now)

Link

Daily commuters fail the Substantial Presence Test because commuting days are not counted in USA. Hence, commuters are also US Non Residents and Canadian Tax Residents. As per CRA ruling, their employers should withhold Canadian Payroll Deductions as long as commuters are Canadian Tax Residents. (Obviously, remote workers have the same issue)

So technically, commuters should also have to have their employers withhold Canadian Payroll deductions simply because they are Canadian Tax Residents, right?

I am planning on being a fully remote worker on H1B from Canada beginning Jan 2025 (currently ensuring the legality before I make the move). The taxes were resolved after talking to CPA, (idea of clawing back from IRS seems complex but with professional help, seems doable)

The only legitimate concern is Payroll Deductions. This ruling affects not only remote workers but also commuters.
Any thoughts?
What if the remote worker commutes 1 week out of every 4 weeks to US location?

Assume a remote worker manages to file taxes without FTC, how to navigate the CPP/EI issue?

Why do you postulate commuting doesnot count? As far as I know IRS goes by presence there is whole explanation of presence a year makes you tax resident for your worldwide income. They go by presence to determin tax residency. More importantly where the work is done ie where is the physical presence of the employee while he/she is working.

Also you can have dual residency for tax purposes. I think CRA inreasingly asserting its claim on taxes where work is being perfomed in Canada. They have gotten lot more active on this in last few years.



"The only legitimate concern is Payroll Deductions. This ruling affects not only remote workers but also commuters.
Any thoughts?"

Which deductions are you talking about?

"What if the remote worker commutes 1 week out of every 4 weeks to US location?"

Best is have part time H1b, process payroll only for the time you are in US, rest of time be a contractor. Again if it was 2014, would have said no issues, even today depending on where your file gets processed or which tax officer is reviewing your file they may and may not let that pass.

"Assume a remote worker manages to file taxes without FTC, how to navigate the CPP/EI issue?"
What issue?

 

[alabatross09]

Why do you postulate commuting doesnot count? As far as I know IRS goes by presence there is whole explanation of presence a year makes you tax resident for your worldwide income. They go by presence to determin tax residency. More importantly where the work is done ie where is the physical presence of the employee while he/she is working.

Also you can have dual residency for tax purposes. I think CRA inreasingly asserting its claim on taxes where work is being perfomed in Canada. They have gotten lot more active on this in last few years.



"The only legitimate concern is Payroll Deductions. This ruling affects not only remote workers but also commuters.
Any thoughts?"

Which deductions are you talking about?

"What if the remote worker commutes 1 week out of every 4 weeks to US location?"

Best is have part time H1b, process payroll only for the time you are in US, rest of time be a contractor. Again if it was 2014, would have said no issues, even today depending on where your file gets processed or which tax officer is reviewing your file they may and may not let that pass.

"Assume a remote worker manages to file taxes without FTC, how to navigate the CPP/EI issue?"
What issue?

The issue that I linked in my previous post. CRA mandates that all Canadian Tax Residents who get paid by an employer should have the employer withhold CPP/EI.

IRS goes by presence yes, but days commuting from Canada are not counted towards SPT. The work is physically performed in US yes.

 

[justinline]

The issue that I linked in my previous post. CRA mandates that all Canadian Tax Residents who get paid by an employer should have the employer withhold CPP/EI.

IRS goes by presence yes, but days commuting from Canada are not counted towards SPT. The work is physically performed in US yes.

There is caveat to that.....

If you are an employer who is resident outside of Canada and you do not have a place of business in Canada, you still have the same responsibilities as Canadian employers, regardless of whether the Canadian resident employee carries out the services in Canada or outside Canada. For more information about CPP coverage by an employer resident outside Canada, see CPP coverage by an employer resident outside Canada.

You have to deduct CPP on a non-resident employee’s remuneration in the same way you would for a resident employee unless they come from a country with which Canada has signed a social security agreement. For more information, see Non-resident employees who carry out services in Canada.