Working remotely for a US company

[chaossaver]

Why incorporate? Why not just be a freelancer without incorporating? This is a very informal link, but has some potentially helpful info https://diaryofatorontogirl.com/canadian-income-taxes-freelancer/

I also don't understand why you'd be "able to be hired by this US company if I incorporate as a company". Really? Perhaps it's just semantics, but seems like you'd be a freelancer (rather than hired by the US company) and you'd invoice them, and they'd pay you (but not as an employee).

Thank you for your reply! The US company actually hires me to be a full-time employee working remotely, like 9-6, 5 days a week. So I thought in this situation I cannot categorize myself as a freelancer.

So far all of my understanding is that if I want to be an employee for them, the only other way (besides through PEO) I can do it is the incorporate myself and start a "personal service business" on purpose, so that I can get paid and pay the same tax rate as my individual income tax rate.

If you know other ways which can help with this situation, please advise! Thank you!

 

[jclarke99]

Thank you for your reply! The US company actually hires me to be a full-time employee working remotely, like 9-6, 5 days a week. So I thought in this situation I cannot categorize myself as a freelancer.

So far all of my understanding is that if I want to be an employee for them, the only other way (besides through PEO) I can do it is the incorporate myself and start a "personal service business" on purpose, so that I can get paid and pay the same tax rate as my individual income tax rate.

If you know other ways which can help with this situation, please advise! Thank you!

I'm going to be in a fairly similar situation, but I plan to spend my time, and invoice, 80% to one company, and the remaining 20% to a few other companies. Hopefully, that let's me escape the PSB designation. But if you don't have that flexibility/option, then perhaps you're correct and you have to be prepared to be classified as a PSB. My understanding is that Canadian taxes are going to be a less favorable in that scenario. From one site, as a PSB...

"You are taxed at the federal corporate tax rate of 28%, plus any applicable provincial tax, instead of the small business net tax rate of 9%."

True, if you didn't incorporate and filed as a freelancer, you'd be taxed at the individual Federal tax brackets. But those at least start at 15% (rather than being hit with 28% at the get go). So, I guess you just need to anticipate being taxed overall (Federal + Provincial) at 40%+. Yikes.

 

[jclarke99]

I'm going to be in a fairly similar situation, but I plan to spend my time, and invoice, 80% to one company, and the remaining 20% to a few other companies. Hopefully, that let's me escape the PSB designation. But if you don't have that flexibility/option, then perhaps you're correct and you have to be prepared to be classified as a PSB. My understanding is that Canadian taxes are going to be a less favorable in that scenario. From one site, as a PSB...

"You are taxed at the federal corporate tax rate of 28%, plus any applicable provincial tax, instead of the small business net tax rate of 9%."

True, if you didn't incorporate and filed as a freelancer, you'd be taxed at the individual Federal tax brackets. But those at least start at 15% (rather than being hit with 28% at the get go). So, I guess you just need to anticipate being taxed overall (Federal + Provincial) at 40%+. Yikes.

FYI, I underestimated. Looks like the combined corporate tax rate is more like 44.5%. But, if I'm reading from the link below correctly, your corporation will pay yourself a salary. The corporation can deduct such salary payments, and your salary would be taxed at personal tax rates. But again, this is still fuzzy to me, so I recommend getting professional advice. Also, incorporating probably requires the need of a lawyer (and the fees that come with that). Good luck. Please share your experiences as you learn more.

https://www.bdo.ca/en-ca/insights/tax/tax-articles/psb-rules-case-study/

 

[chaossaver]

FYI, I underestimated. Looks like the combined corporate tax rate is more like 44.5%. But, if I'm reading from the link below correctly, your corporation will pay yourself a salary. The corporation can deduct such salary payments, and your salary would be taxed at personal tax rates. But again, this is still fuzzy to me, so I recommend getting professional advice. Also, incorporating probably requires the need of a lawyer (and the fees that come with that). Good luck. Please share your experiences as you learn more.

https://www.bdo.ca/en-ca/insights/tax/tax-articles/psb-rules-case-study/

Thanks for the information! I talked to a CPA today, this is what I understand now.

If I incorporate the company, and pay all the money coming in as salary to myself, at the corporate tax level, all salary can be deducted so that there is no profit left the company. The tax rate is higher for PSB, but since there is no profit, the corporate tax will be 0.

At employee level, I need to pay the usual individual income tax, the same as before. So overall, after incorporation and paying all income as salary, eventually the money paid to CRA are the same. But I should definitely not leave any money in the company, otherwise it will be taxed at a very high rate. So the best tax scenario for PSB is to pay the same tax rate as individual income tax

There is another caveat. If the US company provides service to Canada, and if my incorporated company is contracted to provide service in Canada, or if CRA believes that, either case the Canadian entity will also need to pay GST/HST (5%)

 

[jclarke99]

Interesting information. I'm just left wondering - why incorporate? Doesn't seem like you'll be in a situation where you need to be concerned about liability issues. And whereas there are tax advantages for non-PSB small (incorporated) companies, as we've discussed, this isn't the case for PSB companies. So, why not simply be a freelancer under your own name rather than incorporating?

 

[chaossaver]

Interesting information. I'm just left wondering - why incorporate? Doesn't seem like you'll be in a situation where you need to be concerned about liability issues. And whereas there are tax advantages for non-PSB small (incorporated) companies, as we've discussed, this isn't the case for PSB companies. So, why not simply be a freelancer under your own name rather than incorporating?

This is also the question I want to find answer, if I work as full-time, not under contract to freely schedule my time (I guess this does not qualify as freelancer?), without incorporating or using a PEO, can I work for this American employer directly?

 

[jclarke99]

This is also the question I want to find answer, if I work as full-time, not under contract to freely schedule my time (I guess this does not qualify as freelancer?), without incorporating or using a PEO, can I work for this American employer directly?

The problem with working for the U.S. company directly is that you'd be a W2 employee residing in Canada. According to someone on this forum, in your situation, who paid for legal advice - this is at best very complicated and tricky, and at worst illegal. As a W2 employee (that's the possible illegal part) you'd have U.S. taxes withdrawn on your regular pay. You should also be making quarterly tax payments to CRA. So, you'll be making double tax payments. Come tax time, you'd attempt to "claw-back" all the taxes you paid to the U.S., so that ultimately you are paying taxes to just CRA (as you are a resident of Canada).

Back to the PSB. It appears that you can be classified as a PSB whether you're self-employed or incorporated. So, why does the U.S. company want you to incorporate? Here's one guess. In the scenario below (from the link pasted further below), assume that you are Ellie and your U.S. company is Techco.

"One reason that Techco might want to set up a contract for services with a corporation instead of directly with Ellie is to make it clear to both Ellie and the tax authorities that she is a contractor to the company and not an employee of Techco. If Ellie is not an employee, Techco will not be obligated to pay employee benefits, nor will Techco be required to deduct and remit payroll source deductions to the Canada Revenue Agency (CRA), such as employee income taxes and Canada Pension Plan (CPP) and Employment Insurance (EI) premiums."

The article then goes on about the thorny path of being declared a PSB, including the possibility of paying 44.5% taxes.

Tucked away in all this doom and gloom (keep in mind that BDO is posting this in hopes of getting your business) is the following...
"If you find yourself in this situation, it is likely beneficial for the corporation to pay out the PSB income as remuneration (as earned) to you, the incorporated employee, and comply with any corresponding payroll and remittance requirements. "

So in the end the conclusion appears to be....
Incorporate to protect the U.S. company so that they're not on the hook to comply with CRA.
Assume you'll be declared a PSB, but you'll pay all of the corporations income as salary to yourself and presumably avoid the corporate PSB tax hit.

Or at least that's my understanding of all of this. It's just not clear to me why all these doom and gloom articles on PSB don't highlight the possibility of paying out all income as salary to avoid the PSB corporate tax rate. Perhaps it's because some will want their cake and eat it too? Attempting to get the lower small business tax rate (i.e., lower than personal tax rates), while really being a PSB??

https://www.bdo.ca/en-ca/insights/tax/tax-articles/psb-rules-case-study/

 

[chaossaver]

The problem with working for the U.S. company directly is that you'd be a W2 employee residing in Canada. According to someone on this forum, in your situation, who paid for legal advice - this is at best very complicated and tricky, and at worst illegal. As a W2 employee (that's the possible illegal part) you'd have U.S. taxes withdrawn on your regular pay. You should also be making quarterly tax payments to CRA. So, you'll be making double tax payments. Come tax time, you'd attempt to "claw-back" all the taxes you paid to the U.S., so that ultimately you are paying taxes to just CRA (as you are a resident of Canada).

Back to the PSB. It appears that you can be classified as a PSB whether you're self-employed or incorporated. So, why does the U.S. company want you to incorporate? Here's one guess. In the scenario below (from the link pasted further below), assume that you are Ellie and your U.S. company is Techco.

"One reason that Techco might want to set up a contract for services with a corporation instead of directly with Ellie is to make it clear to both Ellie and the tax authorities that she is a contractor to the company and not an employee of Techco. If Ellie is not an employee, Techco will not be obligated to pay employee benefits, nor will Techco be required to deduct and remit payroll source deductions to the Canada Revenue Agency (CRA), such as employee income taxes and Canada Pension Plan (CPP) and Employment Insurance (EI) premiums."

The article then goes on about the thorny path of being declared a PSB, including the possibility of paying 44.5% taxes.

Tucked away in all this doom and gloom (keep in mind that BDO is posting this in hopes of getting your business) is the following...
"If you find yourself in this situation, it is likely beneficial for the corporation to pay out the PSB income as remuneration (as earned) to you, the incorporated employee, and comply with any corresponding payroll and remittance requirements. "

So in the end the conclusion appears to be....
Incorporate to protect the U.S. company so that they're not on the hook to comply with CRA.
Assume you'll be declared a PSB, but you'll pay all of the corporations income as salary to yourself and presumably avoid the corporate PSB tax hit.

Or at least that's my understanding of all of this. It's just not clear to me why all these doom and gloom articles on PSB don't highlight the possibility of paying out all income as salary to avoid the PSB corporate tax rate. Perhaps it's because some will want their cake and eat it too? Attempting to get the lower small business tax rate (i.e., lower than personal tax rates), while really being a PSB??

https://www.bdo.ca/en-ca/insights/tax/tax-articles/psb-rules-case-study/

If I understand your explanation of the first two paragraphs above correctly, now I think the reason why the US company asked me to incorporate is because they don't want to get into the troubles described in your first paragraph. If I am self-employed and I am a full-time employee of the company, and I am in Canada, the hiring US company need to worry about the fact that they hire a full-time Canadian employee so that they need to be complaint to Canada and/or US labor laws.

But if I incorporate myself, the only thing the US company need to do is to sign a service contract with my Canadian company, and pay my Canadian company money every month. And I/"my company" need to do all the labor compliance and payroll taxes at Canada side. Operating this way is safer for the US company, saving them a lot of efforts, and saving them money (Unless they reimburse the employer payroll tax that my company pay to CRA, they shift the cost of paying employer portion of CPP, EI etc to me)

 

[Dms05]

Hello,

I'm a Canadian citizen and got an offer from US employer. I want to work remotely from Canada until this school year and I have TN visa to work for the US employer. Can I work remotely and is it legal?. If so, whom should I inform and what are consequences?

I am looking for suggestions.
Thanks,

 

[scylla]

Hello,

I'm a Canadian citizen and got an offer from US employer. I want to work remotely from Canada until this school year and I have TN visa to work for the US employer. Can I work remotely and is it legal?. If so, whom should I inform and what are consequences?

I am looking for suggestions.
Thanks,

Has your employer agreed that you can work remotely from Canada? That's the first thing to confirm.

 

[chaossaver]

I agree that you need to confirm that your employer supports you work in Canada, especially being "hired" in Canada because it might add complications and costs to the employment itself

I think if your employment happens in the US, you can work from home in Canada as long as your company allows you to do that. In that case you don't need to worry about how to set up things in Canada at all

If you want to be hired in Canada, from my learning from this forum and the internet, I think there are different approaches depending on if you work as a contractor or full-time employee. If you can work as an individual contractor with flexible scheduling, my understanding is that you can just sign a service contract with the US employer and handle all taxes with CRA yourself.

If you have to work as a full-time employee, there are a couple of ways you can look into. If the company has a subsidiary in Canada, you can ask the company to hire you through its Canadian arm; The company can also ask a "Employer of Record" company to hire you, basically similar to outsourcing. You sign the employment contract with the EOR company. But there are additional service costs incurred to you and/or the company; Or you can incorporate and sign service contract with them. For this way you definitely need to consult with a qualified CPA who are familiar cross-boarder businesses.

 

[jclarke99]

In addition to the above suggestions, I suggest checking out my response to this thread...

https://www.canadavisa.com/canada-immigration-discussion-board/threads/living-in-canada-but-on-a-uk-contract-any-issues.757832/

It's a UK-Canada situation, but the same principles apply to US-Canada.

 

[raklukr]

I'm an FSW EE PR holder and I work remotely for my US employer via it's Canadian Subsidiary (I'd coordinated with both the US and Canadian branches and confirmed this arrangement before landing, the subsidiary is located in Quebec). I live in Ontario and work fully remote, so I will be filing Ontario taxes next year. I was on the US payroll for 5 weeks while in Canada, so I received a couple of US paystubs while being a resident of Canada when I landed here initially.
Would I need to report that US income and pay Ontario taxes on those 2 US paystubs as well while filing?

 

[YVR123]

I'm an FSW EE PR holder and I work remotely for my US employer via it's Canadian Subsidiary (I'd coordinated with both the US and Canadian branches and confirmed this arrangement before landing, the subsidiary is located in Quebec). I live in Ontario and work fully remote, so I will be filing Ontario taxes next year. I was on the US payroll for 5 weeks while in Canada, so I received a couple of US paystubs while being a resident of Canada when I landed here initially.
Would I need to report that US income and pay Ontario taxes on those 2 US paystubs as well while filing?

Yes. if those are income after you are deemed tax resident in Canada, you need to include that income in your tax return.
I believe that you still need to file US tax return. You will get credit of your tax paid in US while filing for Canadian tax.

 

[Ancabulursun]

You can work for US firms from Canada. I have been doing it. But remember that can only hire you as a contractor, if they don't have a local office/presence. DM me if you need any other info. Thanks,

A friend of mine who lives in Canada works the same way. my friend is telling the truth