Newsletter of: the CEN-TA Group
On Saturday, Nov 20, 1999, we had our US working visa and US income tax rules seminar in the Peter Kaye Room at the Vancouver Public Library. I have to say that I was pleased. 40 attendees paid $100.00 each for a 4 hour seminar which covered the gamut from working under a B 1 visa and continuing to live in Canada to a major intra-company transfer under the auspices of an L 1. There was a lot of conversation about TN's and HIB's as well. 100% of the proceeds went to CRIME STOPPERS. Greg Samuels LIB picked up the cost of the room and the CEN-TA Group paid for materials and coffee and cookies.
If you missed this seminar, the next one will be Saturday, January 8, 2000 in the Peter Kay Room at the Vancouver Public Library. Please register with the paper work at the end of this newsletter.
The Nov 20, 99 Seminar attendees were represented by union representatives, large corporations, small corporations, proprietorships, partnerships and individuals who just wanted to move south to get away from B.C.
THIS SEMINAR WAS NOT BILLED AS A BUSINESS EXPANSION SEMINAR
IT WAS BILLED AS A "WORKING" IN THE USA
SEMINAR FOR INDIVIDUALS.
The main push of the seminar was to deal with people who want to work in the USA under NAFTA and to explain to those "already" working across the border, when they had to file a US tax return and when they could expect to actually pay U.S. income tax.
However, I gave this short Business overview to satisfy a couple of business expansion questions that were asked.
To paraphrase a Better Business Bureau saying, "Before you go, investigate". You will have Immigration and income tax problems which will not go away if you ignore it. "Just because" you know 14 people that are doing what you intend to do, does not mean that you can do the same thing and "get away" with it.
And - please do not ever ask me "WHAT IF I SAY?" You can call a toad a frog all day and it will still be a toad. If you have to figure out "what" to say, you will likely end up in trouble at some point. As my Uncle Keith alvays said, "If you always tell the truth, you won't have to remember what you said."
Any Canadian business which takes a U.S. DESTINED order over the phone or by fax or email or on an e-com. web site, has started the U.S. experience.
If that is the extent of your US sales activity, and all your equipment, stock, warehouse facilities and personnel stay in Canada through the entire process, There is no US INS (11mnigration and Naturalization Service) or IRS tax liability.
BUT! If you, the decision maker, (or a decision making employee or company officer) are making sales trips to California and selling the product and for convenience stake, you set up a little "office identification" spot in a mail order facility and let it look like you are a U. S. business, you likely have to file a US Corporation 1120Fand a California Corporation Business Tax return AND you, the individual who is selling your Canadian product in the state of California, would be filing a US 1040 or 1O40NR PLUS a California 540NR. And this is a little weird, but if your sales time in the states earned you less than $10,000 personally, you would not have to pay any Federal Tax, but YOU WOULD owe California State tax because California does not recognize the US I Canada Income Tax Treaty.
(No Persons With Authority)
Sometimes you may have a product kept in a warehouse where the warehouse service will provide the distribution services from a US point. No one in the US has any authority other than to ship an order at a direction from the Canadian company. If this is the case, there is no Federal Taxation but you could be liable for the State Sales taxes for product sold into that state and state income taxes. In the case of some states like Washington State, You must have an actual copy of the other business's sales tax license in order to avoid having to pay the state sales tax yourself.
BC businesses are used to just "getting a number" to sell provincial sales tax exempt. This does NOT work in the State Of Washington.
(You do sales as well and have Authority)
If you are part of the operation and have authority, even if you are not doing actual work, you now have a presence in the U. S. Be prepared to file US Federal and state tax returns and to pay tax on the pro-rated portion of your business profits.
There are several different methods of expanding into the USA.
3. Joint Venture
C for non residents,
S if you are a resident or citizen of USA.
5. LLC - Limited Liability Company
6. LLP - Limited Liability Partnership - usual method for buying a Hotel or large real estate project with multiple investors. Watch out though - Waverly Properties and Magellan were LLP's.
Federal corporation rates in the US range from 15> 39%.
State tax rates run from a low of 0% in Texas to 9% in Arizona. California is 8.84% but has a minimum of $800.00. (On the other hand, Texas has a high sales tax)
If you are living in the US and can file a Joint Tax return, your Federal Tax rates run from 15% up to 43K and 39.6% over 283K. Washington, and six other US states have no State Tax but other states can tax you another "up to" 9%.
Social Security Tax is 15.6% up to 64K and 2.9% thereafter with no upper limit unlike Canada Pension Plan.
Maybe you have a business operation that someone wants to pay you a royalty on. Remember that YOU HAVE TO HAVE A PROSPECTUS TO SELL FRANCHISES INTO THE US AND IT CAN BE A CRIMINAL OFFENSE TO SELL INTO SOME STATES (California, Wisconsin, etc.) without an approved prospectus, but if you have the prospectus, you would pay 10% tax on the Royalties to the Federal Government plus a further tax to some states like California.
This assumes that you have NO business operations in the USA. NONE!
Nexus refers to a business presence within a state. In August, 1998, An announcement was made to Canadian trucking companies that they would have to file US tax returns back to January 1, 1992. EACH STATE HAS A DIFFERENT NEXUS.
New York requires Tax returns and TAX TO BE PAID if a Canadian Trucking Company has made more than two pickups and/or deliveries in the State in any calendar year. Dropping a trailer and picking up a trailer means that you have made your "2".
Pennsylvania requires a Pennsylvania corporate return be filed by any Canadian trucking company whose trucks covered more than 50,000 miles in total through the state.
Oregon will not tax a company whose trucks merely drive through the state but tax the first delivery or pickup of a trailer.
As an Aside, Canada is now taxing US citizen airline employees flying in and out of Canada as you can see from the document I have up front with me from Denise Rondpre from Revenue Canada. In fact as the sheet in your book shows, Revenue Canada expects the person to break up their flight and pay a percentage to Ontario, Manitoba, Saskatchewan, Alberta and British Columbia on a flight from Toronto to Vancouver even if the flight goes through the USA. (If you want to see this, we will fax it to you).
Going back to "Nexus" for other companies.
If you have established a warehouse and / or have developed a local market, you can be sure that the state will be looking at you because you have established a "nexus".
Also expect a Business and Occupancy tax from many states such as Washington.
Remember, the CEN-TA Group specializes in US / Canadian Tax and Immigration matters for individuals and small corporations. We see a lot of people and in the last two months, I have had about 10 people who have been using Canadian accountants do their income tax returns and tell them that they do not need to do a U.S. income tax return. In one case, the client who came to my office today, had owned a rental condo in the U.S. since 1980. This condo has been rented out every year and the client had a professional Canadian accountant do his return each and every year and tells me that he asked his accountant every year if he had to file a US income tax return. Every year the Canadian accountant told him that he did not have to file because he was either losing money or not making enough to have to pay tax. This left him liable for $50,000 US in tax and penalties. Rest of story is in the whole newsletter available at the end.
In another case, we have had TWELVE returns come in prepared by a professional Canadian accountant with NINE degrees showing on his letterhead. Not one of the Canadian OR US returns were correct although this individual displays professional accounting degrees from both countries.
Indeed, he had even used the wrong forms for the U.S. returns. US citizens have to file US income tax returns even if they have no US income. F or the 1998 returns, he filed all the US citizens on
IO40NR returns which is the wrong form. (WARNING) If you are a US citizen, and your accountant (or you) filed a lO40NR for your US income tax return, that is incorrect. It could be a sign that you have rejected your US citizenship and it could (not yet to my knowledge) result in your loss of US citizenship and your inability to ever return to the US to live or even to visit.
In another case, a US citizen wife and mother was catching up her 1996, 1997, and 1998 returns so that she could sponsor her husband and children to go and live with her in the US. This accountant filed her return as a non-citizen and showed her as a single woman with no children even though she was filing the returns to back up her sponsorship for US residency for her husband and children.
Now I want to talk about a whole bunch of people who are in the U.S. legally but make their position illegal by performing services not allowed under their visa.
One of my favourite stories involved a client who was working illegally in the United States. He had a multi-million dollar construction job going with his own money.
Legally, he is allowed to go down and look at the site. He could even hire people and tell them what he had hired them for (i.e. what to do). However, that was it. Under the terms of his B-1 Visa, he was not allowed to actually work on the site. He was brought back to Canada for buying a ladder and other supplies for the work site. When he fired someone, the individual complained to the INS (US Immigration and Naturalization Service) and they arrested him and drove him back to the Canadian Border.
In another case, a client who had a warehouse in the state of Washington for 22 years, fired his warehouse manager (the place was filthy) and started sweeping the floor and taking garbage out. My client tells me that it was only 30 minutes before an INS officer showed up and after asking about his US status, arrested my client for working illegally in the United States. Both of these gentlemen were lucky because the INS officers did not BAN them from the U.S. for 3, 5 or 10 years because the 1996 Illegal Immigrant Act had not taken effect yet. And, yes, the fired employee had called INS to complain about his Canadian boss working.
I tell new clients that if they are at a US branch office without the proper visa, they cannot answer the phone, they cannot mail an envelope, let alone address an envelope, or any other duty what ever if it is for the benefit of that branch office. They just do not believe me because "everyone" else does that and, besides, if they can't do the things that they do in the US, there is no sense in their going to the branch plant, etc., etc., etc.. But, Canadians I know have been deported for:
Putting VISA or MASTERCARD charge slips through the system;
Collecting rents for their brother;
Collecting rents on property owned by their just deceased spouse;
Getting a model airplane off the roof of a paraplegic neighbour;
Repairing cabins, ski chalets, and equipment for Canadians in the U. S.
Selling a US made product distributed by their Canadian company in the US;
and a myriad of other little innocuous things that no one thinks of as being illegal.
When, I started to explain to my "ladder man" why he had been deported, he explained it to me himself His statement went something like this. He was caught in UNION RULES. Imagine a longshoreman moving a truck on the dock when it is a teamster's job to move the truck.
Carpenters do not pull electric wires. Electricians do not hammer nails on a union site.
A Monday, Oct 4, 99 Vancouver PROVINCE article told the story of Michael Korpa, a Surrey resident who was working in the US at a construction site with a B-1 visa. His Visa allowed him to do some supervision. However, he and others started getting supplies (like my ladder man), and carrying on the jobs normally assigned to others (union rules).
All together, five of them were picked up at the site and spent three days in jail sleeping on a I inch thick foam mattress on the floor. This is not unusual. Most people do not go public and we should all thank Michael Korpa for telling his story publicly as a warning to others.
I regularly have someone tell me they are working in the US illegally while they are waiting for their proper visa to come through. How stupid can one be. If caught, they will not get their visa and will be banned from the US for three, five or ten years with no official avenue of appeal.
Dec 2, 1999 addendum. Since writing the above, I had 4 people phone with US INS problems in one-half hour. There is no doubt that the rules are being enforced. If you are attending business meetings or making inspection or sales calls to the US, you MUST file a U. S. Income tax return to prove that you do not owe any money. If your company comptroller is telling you not to because it will start a precedent, remember, it is YOUR tax situation. When the IRS comes calling, your company comptroller will be either be long gone or deny it. If you work for a company that tells you not to file a US tax return, you get a personal guarantee from the board of directors that they and the company will represent you and pay any tax bill that may arise up to 20 years later.
This is a scanned copy of the Oct 4, 1999 page 3 PROVINCE Article
Michael Korpa?s Blood pressure went up after he was put behind bars for a visa infraction
Surrey man who got caught tells of his ordeal behind bars
Michael Korpa was finger?printed and photographed. put behind bars with criminals. dressed In prison garb and given an inch-thick mattress and paper ?thin pillow to sleep on.
At the age of 52, it was enough to send his blood pressure soaring. The Surrey man's crime? He was a Canadian working in contravention of his U.S. job visa.
Korpa's predicament and that of four other Canadians eventually driven back across the border and dumped by the U.S. Immigration and Naturalization Ser?vice this year is symptomatic of U.S. nervousness about an esti?mated 144,000 Canadians work?ing south of the border Illegally.
Korpa was arrested while working as a supervisor on a major building project in which a Canadian company has a stake.
INS documents obtained by The Province show how agents played a cat-and-mouse game to snare Canadians working at the site. They were under scrutiny from the moment they crossed the border at Blaine. Wash.
Their entries were recorded. They were watched as they carried out their duties at work. They were followed and their car plates were checked.
Then came the raid last May and a three-day ordeal.
'"Three days at my age and I am 52 and I had to lie on the floor for three nights on a one inch mattress and a paper thin pillow and my blood pressure went up, and I have never been arrested in my life,? said Korpa.
A Kelowna man who was also picked up while supervising form preparation for concrete pouring said he felt the criminals he was locked up with treated him better than the INS.
He said he refused to have his fingerprints or his photo taken - until he was told he'd be picked up physically by five big officers and forced to comply.
Finally, all five agreed to voluntary deportation and were driven to the border.
Korpa had a B1 visa to work for six months. He was not allowed to do any work except supervise. INS said he violated the terms of his visa by picking up material and carrying out Jobs normally assigned to others.
While the INS agents were keeping an eye on several Canadians only five were scooped up along with nine Mexican workers.
INS documents allege the men did not have sufficient. Authorization to work. But their Seattle lawyer, Bob Gibbs, says It was a case of overzealous enforcement.
Most of those arrested feel some of their American counter parts tipped off the INS.
In one INS document, an American questioned by the INS is quoted as saying: ?There are a lot of Canadians here. You have to watch out for them.
This has been re-printed from page 3 of the Monday, Oct 4, 1999 edition of the Vancouver Province. Other stories can be found in the same edition.
the CEN-TA Group and david ingram have been assisting clients with USA and Canadian income tax and immigration matters since 1966. Further information and individual service can be found at 604 913-9133 or at www.centa.com - or www.david-ingram.com or old television programs at www.mediaontap.com/ingram-rogers
The person who received this is a U.S. citizen who lives in the USA &
comes across the border to fly for Canadian Air1ines out of Vancouver.
Because she is a non-resident of Canada, she must allocate her earnings and pay tax to each province she flies over- The same is true of a Canadian who performs duties in multiple states in the USA.
PLEASE PASS THIS ALONG TO A FRIEND OR BUSINESS ASSOCIATE IF IT DOES NOT APPLY TO YOU
This is the seventh page of a fifteen page reassessment for the years 1996 and 1997.
Provincial AJlocation Adjustments to Include Wage R.eduction:
BC $10.416.76 X4.3%-$447.92
$10.416.76 - $447.92 = S9,968.84
$9,968.84 + $379.69 = $10,348.53
ONT: $7.887.58 X 4.3% = $339.17
$7,887.58 - $339.17 = $7,548.41
ALTA: $2,033.43 X 4.3% =. $87.44
$2,033.43 - $87.44 = $1.945.99
MAN: $1.323.67 X 4.3% = $56.92
$1.323.67 - $56.92 = $1.266. 7S
YT: $139.20 X 4.3%= $5.99
$139.20 -$5.99 =- $133.21
Income Earned In Canada $21.242.23
British Columbia: $ 10,348.53
Ontario: $ 7,548.41
Alberta: $ 1,945.99
Manitoba: $ 1,266.75
Yukon: $ 133.21
Travel Allowance and Uniform Cleaning are not included in your Gross Income as these
are non-taxable benefits.
It is amazing because CANADA has actually declared to the
This is the same set of rules which apply to a GRIZZLY Basketball player. When filing their returns, we have to pro-rate their earnings according to the states they played in and file Arizona, California, Colorado, Illinois. Indiana, and another 17 state returns.
If you, A Canadian business person make sales calls to California, Arizona, Illinois, New York, etc.,
you MUST file a U.S. 1040 or 1040NR AND the relevant state tax returns. It does NOT cost more tax. Canada will give you credit for every cent you paid to the states as a foreign tax credit.
This applies, even if you are only paid from Canada by a Canadian employer.
If you earn les than $10,000 in the USA, there is NEVER any US federal tax.