Income in US and CANADA 5471 - Cdn Corporation while in US with H1B - Steve Peters, Kevyn Nightingale, Gary Gauvin, Len Vandenbe


QUESTION:

Hello,
I need help in understaing the tax obligation in multi country situation.

Iam a canadian citizen and have a incorporation in canada. Initially Me and my spouse use to work for our Incorporation company and pay both corporate taxes and personal taxes T4s. 

Now we moved to US on H1 visa (spouse on H4) and working for a software company. I get my pay check tax deducted and file W2 returns here in USA.

I take small IT projects to work from home. I bill this through my canadian Incorporation. I draw a salary from this and run a payroll in canada and at year end I pay both corporate taxes and as well as T4 Income tax in Canada

I have been doing this since last couple of years. Recently I came across CRA website it says Only if I stay more than 180 days in canada then Iam obliged to file T4 returns. Another article says I should declare world income when I file T4 tax return in canada. This makes things complex.

Iam confused please help me understand the multi country taxation. 
Is it must to declare my W2 income in Canada.
Is this wrong to run payroll in canada while staying in US and working on W2. If so how should I take money from my canadian incorporation which I get from my private work.
Please help me understand in this regard.

Thanks
xxxx

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david ingram replies:

This was rejected originally but I had to answer it when I saw the situation.

If the clients you are looking after are in Canada, you have a two country tax problem.

If the clients are in the US you have a tax AND a US Immigration problem.

It sounds to me from your query that you taking US clients and would have a BIG  problem if someone complained or if you were caught in a routine audit.

If you were on a TN visa, it is possible to get 2 or even 8 TN visas.  You could have a TN for your main job and another TN for each of the other projects you want to look after in the USA.

However, you can only have ONE H1B Visa and can only work for 'that' company in the US.

If you were taking contracts from Canada and doing them in the US that would be fine but any earnings are reportable on your US 1040 by filing US form 5471 each year to show the total earnings from your Canadian corporation.  As described, the earnings would not be taxable in Canada because the work is form the states, performed int eh states and paid to the states.  You would file a Canadian Corporate return but not a personal return.  However, the US  penalty for failure to file form 5471 to report the Canadian Corporate earnings is $10,000 for the first 90 days and $10,000 every 30 days after that to a maximum of $50,000 per shareholder (owning 10% or more of the Canadian Corporation) per year. 

If the contracts were from Canada, you would not have an Immigration problem but are still liable for US tax on any earnings and filing the 5471 forms.

You likely need an individual consultation.  As well as myself, others I could recommend are:

Gary Gauvin is absolutely qualified to deal with you.  He is an old business partner of mine from Ottawa.  He now practices outside of Dallas Texas as a one or 1 1/2 person office.  If you deal with Gary, you will deal with Gary.  He is a US enrolled agent.  You can find his website easily.  Type - income Tax Expert -  into
google.  Gary will come up as number one or two.  Why, because he is.  If I am looking for a first or second opinion, I call Gary. Disadvantage -

Gary is a one and a half  person office.  Advantage - You will always get to talk to Gary.

Gary likes corporations.  I  and my four associates do not like them. I like dealing with individuals who deal cross-border withOUT corporations.

OR   KPMG in Vancouver. The last time  I checked they had 22 people in their US/Canada department.  call (604) 691-3025.  Advantage - Lots of Backup.  Disadvantage - It will be hard to get the same person to deal with you three times in a row.

OR   Steve Peters with KPMG in Halifax (902) 492-6011

OR    Kevin Nightingale in Toronto (416) 733-9595

OR     Len Vandenberg with BDO Dunwoody in Kelowna, BC.  (250) 763-7600

OR     Steve Katz in Vancouver at (604) 732-1515

OR    Brad Howland in Victoria at (250) 598-6258

Whoever you choose, you would likely do well to consult with me for one or two hours a year.  If I have a suggestion, it will be worth it.  If I can't come up with anything, you will know that what you are doing is likely the best track.  I will compare it to my dentist.  When I went in the fall of 2005, I ended  up with $16,000 to $18,000 of dental bills, a root canal, a bunch of pain, and a lot of nice new caps, etc. 

When I went for an inspection on Jan 29th, he could not find anything wrong except that I was not flossing.  Which one did i appreciate more?

Well both - the first time was expensive but dealt with years of neglect.  The second said I am on the right track.

Good luck.


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SUGGESTED PRICE GUIDLELINES - April 26, 2008

david ingram's US / Canada Services
US / Canada / Mexico tax, Immigration and working Visa Specialists
US / Canada Real Estate Specialists
My Home office is at:
4466 Prospect Road
North Vancouver,  BC, CANADA, V7N 3L7
Cell (604) 657-8451 -
(604) 980-0321 Fax (604) 980-0325

Calls welcomed from 10 AM to 9 PM 7 days a week  Vancouver (LA) time -  (please do not fax or phone outside of those hours as this is a home office) expert  US Canada Canadian American  Mexican Income Tax  service help.
pert  US Canada Canadian American  Mexican Income Tax  service and help.
David Ingram gives expert income tax service & immigration help to non-resident Americans & Canadians from New York to California to Mexico  family, estate, income trust trusts Cross border, dual citizen - out of country investments are all handled with competence & authority.
 
Phone consultations are $450 for 15 minutes to 50 minutes (professional hour). Please note that GST is added if product remains in Canada or is to be returned to Canada or a phone consultation is in Canada. ($472.50 with GST if in Canada) expert  US Canada Canadian American  Mexican Income Tax  service and help.
This is not intended to be definitive but in general I am quoting $900 to $3,000 for a dual country tax return.

$900 would be one T4 slip one W2 slip one or two interest slips and you lived in one country only (but were filing both countries) - no self employment or rentals or capital gains - you did not move into or out of the country in this year.
 
$1,200 would be the same with one rental
 
$1,300 would be the same with one business no rental
 
$1,300 would be the minimum with a move in or out of the country. These are complicated because of the back and forth foreign tax credits. - The IRS says a foreign tax credit takes 1 hour and 53 minutes.
 
$1,600 would be the minimum with a rental or two in the country you do not live in or a rental and a business and foreign tax credits  no move in or out

$1,700 would be for two people with income from two countries

$3,000 would be all of the above and you moved in and out of the country.
 
This is just a guideline for US / Canadian returns
 
We will still prepare Canadian only (lives in Canada, no US connection period) with two or three slips and no capital gains, etc. for $200.00 up. However, if you have a stack of 1099, or T3 or T4A or T5 or K1 reporting forms, expect to pay an average of $10.00 each with up to $50.00 for a K1 or T5013 or T5008 or T101 --- Income trusts with amounts in box 42 are an even larger problem and will be more expensive. - i.e. 20 information slips will be at least $350.00
 
With a Rental for $400, two or three rentals for $550 to $700 (i.e. $150 per rental) First year Rental - plus $250.
 
A Business for $400 - Rental and business likely $550 to $700
 
And an American only (lives in the US with no Canadian income or filing period) with about the same things in the same range with a little bit more if there is a state return.
 
Moving in or out of the country or part year earnings in the US will ALWAYS be $900 and up.
 
TDF 90-22.1 forms are $50 for the first and $25.00 each after that when part of a tax return.
 
8891 forms are generally $50.00 to $100.00 each.
 
18 RRSPs would be $900.00 - (maybe amalgamate a couple)
 
Capital gains *sales)  are likely $50.00 for the first and $20.00 each after that.

Catch - up returns for the US where we use the Canadian return as a guide for seven years at a time will be from $150 to $600.00 per year depending upon numbers of bank accounts, RRSP's, existence of rental houses, self employment, etc. Note that these returns tend to be informational rather than taxable.  In fact, if there are children involved, we usually get refunds of $1,000 per child per year for 3 years.  We have done several catch-ups where the client has received as much as $6,000 back for an $1,800 bill and one recently with 6 children is resulting in over $12,000 refund. 

Email and Faxed information is convenient for the sender but very time consuming and hard to keep track of when they come in multiple files.  As of May 1, 2008, we will charge or be charging a surcharge for information that comes in more than two files.  It can take us a valuable hour or more  to try and put together the file when someone sends 10 emails or 15 attachments, etc. We had one return with over 50 faxes and emails for instance. 

This is a guideline not etched in stone.  If you do your own TDF-90 forms, it is to your advantage. However, if we put them in the first year, the computer carries them forward beautifully.
 









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