Director's Fees paid to USA

Sent: Thursday, November 30, 2006 12:12 AM
To: taxman at
Subject: Director's Fees
My wife is a Director of a family-owned business in
Canada. She attends meeting(s) in Canada and earns
"Director's Fee" income (T4 slip issued by company)
every year.
Though she is a resident of USA, she submits an annual
Canadian tax return paying taxes due and declaring
that this is her only worldwide income (Schedule A),
which it is.
For the US taxes, she declares this income as
Self-Employment income and also submits Form 1116 for
taxes paid in Canada.
Last year (2005) things changed on the Canadian side:
1) CRA now charges a Surtax on Non-Residents of 48% of
tax due!! (Schedule 1).
2) In the past, she has submitted Alberta taxes (where
the income was earned) and paid those according to the
calculated value. But this year, the CRA overruled the
submitted tax return and re-calculated with NO Alberta
tax (to her benefit of course).
My question is: Do we or do we not pay Alberta tax
based on this situation??
Thanks for your email list service!!!!
david ingram replies:
If she living in the US and was flying for Air Canada as an employee from
Vancouver to Ottawa and back in this following flight plan, her tax would be
calculated as follows in a multi-jurisdictional tax calculation.
Flies Vancouver to Calgary - 	One half of this flight credited to BC other
half to Alberta
Calgary to Toronto		One half to Alberta and the other half to Ontario
Toronto to Ottawa			All this flight credited to Ontario
Ottawa to Toronto			all flight credited to Ontario
Toronto to Chicago		about 5% to Ontario, the balance to USA
Chicago to Calgary		about 5% to Alberta, the balance to USA
Calgary to Vancouver		one half to Alberta, one half to BC
Using the CRA logic in this calculation, there is no doubt that a
non-resident of Canada owes the tax to the province where the services were
This answer was based upon your statement that a T4 slip (employee status)
was issued.
If in fact, it was a T4A (self employed) than she might not owe any tax to
Canada under the terms of Article XIV of the US/Canada Income Tax Treaty as
she has no fixed base of operations in Canada. If she has a fixed base, then
she should be paying tax to Alberta and the Feds.
File it as an Alberta return.  If the CRA wants to change it, let them.  It
is easier than spending any time or money to make them consistent in their
assessing.  In other words, this drives me crazy because they never do two
alike and the persecution of some 400 CAIL and AIR CANADA employees by
making them file these silly returns is just a lot of make work.
You can see my own frustration here. However, it is not worth your spending
any time on it.  One time when it happened with one of my clients with
regard to BC, I wrote a letter to Premier Campbell (whom I know reasonably
well) and the Minister of Finance at the time.  The letter pointed out that
the province was losing money.  I did not receive a reply from either of
them on what "I" thought was an important matter.
However, you may have another problem.   If your wife owns 5% or more of
this family business, she has to file US form 5471 for the company.  Failure
to file can have penalties of up to $500,000 plus 5 years in jail. the
following old Q & A explains it a bit
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My_question_is: Applicable to both US and Canada
Subject:        IRS 5471
Expert:         taxman at
Date:           Tuesday November 22, 2005
Time:           06:07 PM -0800
I hold dual US and Canadian citizenship, and I work as a consultant in the
Information Technology field.
In April of this year, I incorporated in order to limit risk in the event of
a lawsuit related to errors and omissions, and to have greater access to
consulting contract - many clients require incorporation to avoid WCB, CP,
and OAP liabilities in the event that CCRA deems me to be an employee of the
Client etc.
As far as I can tell, I am a Category 2 filer of IRS form 5471, as I am the
sole shareholder and president of my incorporated Company. The question I
have is whether I should be drawing a salary (Earned Income) or receiving
Dividend Income from the Company, for my role as President? In other words,
which approach would yield a lower combined (US Personal + Canadian Personal
+ Canadian Corporate) tax liability?
david ingram replies:
I have not done the calculation for a while but the last time I did it,
taking a $40,000 salary and the rest in dividends "increased" the overall
tax by about 1/2% when you added the corporate and personal tax together.
In addition, a salary of up to $80,000 US is exempted under US law and as of
2005 does not affect the AMT calculation.  On the other hand, the dividends
or retained earnings become taxable and require 116 forms to be filed.
You have to do the specific calculations to get your answer.
I know why you have the Cdn Corporation but you have lost the benefits of a
With a corporation, it is extremely difficult to make your personal mortgage
Try reading the November 2001 newsletter in the top left hand box at
For the purposes of the 5471, it is 1000 times easier to do the form if you
have paid all the profit to your self or you and your spouse as a salary
leaving zeros for the 5471 calculations.
Answers to this and other similar  questions can be obtained free on Air
every Sunday morning.
Every Sunday at 9:00 AM on 600AM in Vancouver, I, david ingram am a regular
guest on Fred Snyder of Dundee Wealth Managers' LIVE talk show called "ITS
Those outside of the Lower Mainland will be able to listen on the internet
at <>
Call (604) 280-0600 to have your question answered.  BC listeners can also
call 1-866-778-0600.
Callers to the show and questioners on this board can also attend the
Thursday Night seminars on finance and making your Canadian Mortgage
Interest deductible.
Every Thursday Evening, Fred Snyder of Dundee Wealth Management conducts one
of 17 different financial seminars in the boardroom of his office
Time:    7:00 to 9:30 PM
Date:    Every Thursday evening
Place    1764 West Seventh
             Vancouver (corner of Burrard)
Phone (604) 731-8900 to register
No cost - no obligation
Topics always cover mortgage interest as a deduction
other topics - getting the mortgage, estate planning, critical care
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If you are starting in downtown Vancouver and do not want to go home first,
one of the excellent THAI HOUSE restaurants is in the same building and
makes a nice start to the evening.
I, david ingram, manage to make three out of 4 of them to cover mortgage
interest as a deduction and give the class an adding test.
David Ingram's US/Canada Services
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Home office at:
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Calls welcomed from 10 AM to 10 PM 7 days a week (please do not fax or phone
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email to taxman at <mailto:taxman at> <>
Disclaimer:  This question has been answered without detailed information or
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and all non-contractual duties are expressly denied. All readers should
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