Income Taxes in Canada - ARTicles XIV & XV
QUESTION:
I spent time in Canada working as a consultant, but never more than 180 days in any one year. Taxes in the amount of 24% were taken out for Canadian income taxes, but I have been trying to get back since I paid taxes in the United States as well.
I thought this was taking care of by the NAFTA rules on taxation.
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david ingram replies:
Your tax situatiion is dealt with by Article XIV or Article XV of the US / Canada Income Treaty.
Under Article XIV, you would be tax free in canda as a self employed person if you had no fixed base of operations. That would mean that you continued to live in the US and came up here and stayed in different hotels or motels and workd from home, etc with no fixed base in Canada. If on the other hand, you rented an apartment for 5 months (where you did a lot of y9ur work) or you had a desk and fixed place to work at in the company office for which you were consulting, you would have a fixed base and owe Canada income tax which would be more than 24% on paret of it if you earned over $36,000 in Canada.
Article XIV Independent Personal Services Income derived by an individual who is a resident of a Contracting State in respect of independent personal services may be taxed in that State. Such income may also be taxed in the other Contracting State if the individual has or had a fixed base regularly available to him in that other State but only to the extent that the income is attributable to the fixed base.
If you were an employee, then you were tax free in Canada if you earned less than $10,000, but taxable on all of it if over $10,000 Article XV Dependent Personal Services 1. Subject to the provisions of Articles XVIII (Pensions and Annuities) and XIX (Government Service), salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.
2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in a calendar year in the other Contracting State shall be taxable only in the first-mentioned State if:
3. Notwithstanding the provisions of paragraphs 1 and 2, remuneration derived by a resident of a Contracting State in respect of an employment regularly exercised in more than one State on a ship, aircraft, motor vehicle or train operated by a resident of that Contracting State shall be taxable only in that State.
In either case, you have to file a Canadian Tax return.
And, all is not lost. If you end up leaving some or all or even a little more tax in Canada, you will get credit for it on your US 1040. Put the amount of tax paid to Canada on US form 1116. You shouild get credit for all of it or at least most of it against any US tax you paid on a dollar for dollar basis.
http://www.irs.gov/pub/irs-pdf/f1116.pdf
I spent time in Canada working as a consultant, but never more than 180 days in any one year. Taxes in the amount of 24% were taken out for Canadian income taxes, but I have been trying to get back since I paid taxes in the United States as well.
I thought this was taking care of by the NAFTA rules on taxation.
-------------------------------------------------------
david ingram replies:
Your tax situatiion is dealt with by Article XIV or Article XV of the US / Canada Income Treaty.
Under Article XIV, you would be tax free in canda as a self employed person if you had no fixed base of operations. That would mean that you continued to live in the US and came up here and stayed in different hotels or motels and workd from home, etc with no fixed base in Canada. If on the other hand, you rented an apartment for 5 months (where you did a lot of y9ur work) or you had a desk and fixed place to work at in the company office for which you were consulting, you would have a fixed base and owe Canada income tax which would be more than 24% on paret of it if you earned over $36,000 in Canada.
Article XIV Independent Personal Services Income derived by an individual who is a resident of a Contracting State in respect of independent personal services may be taxed in that State. Such income may also be taxed in the other Contracting State if the individual has or had a fixed base regularly available to him in that other State but only to the extent that the income is attributable to the fixed base.
If you were an employee, then you were tax free in Canada if you earned less than $10,000, but taxable on all of it if over $10,000 Article XV Dependent Personal Services 1. Subject to the provisions of Articles XVIII (Pensions and Annuities) and XIX (Government Service), salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.
2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in a calendar year in the other Contracting State shall be taxable only in the first-mentioned State if:
- (a) such remuneration does not exceed ten thousand dollars ($10,000) in the currency of that other State; or
(b) the recipient is present in the other Contracting State for a period or periods not exceeding in the aggregate 183 days in that year and the remuneration is not borne by an employer who is a resident of that other State or by a permanent establishment or a fixed base which the employer has in that other State.
3. Notwithstanding the provisions of paragraphs 1 and 2, remuneration derived by a resident of a Contracting State in respect of an employment regularly exercised in more than one State on a ship, aircraft, motor vehicle or train operated by a resident of that Contracting State shall be taxable only in that State.
In either case, you have to file a Canadian Tax return.
And, all is not lost. If you end up leaving some or all or even a little more tax in Canada, you will get credit for it on your US 1040. Put the amount of tax paid to Canada on US form 1116. You shouild get credit for all of it or at least most of it against any US tax you paid on a dollar for dollar basis.
http://www.irs.gov/pub/irs-pdf/f1116.pdf
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