Tax Liabilities for Americans working in Canada
American citizens and green card holders often work in Canada as an employee. The income earned during this period can be paid by an American employer or a Canadian one, depending upon the type and nature of employment. Common sense says that income earned in Canada will be taxed in that country. However, due to tax treaties between the two countries, USA and Canada, the system is not all black and white!
Unless you are sure about the tax laws and how you fit into the scheme of things, you will end up being a victim of double taxation: wherein you pay taxes for your income both in USA and Canada! As an American citizen who works in multiple countries, your income in these different countries will be taxed as per the laws of the concerned country. But due to the treaty, you are spared when the question is about American citizens working in Canada.
Now, let us consider different sides of the same question: what are your tax liabilities as an American working in Canada.
Firstly, if you are earning from a Canadian establishment for services rendered, a part of your income is withheld as tax deducted at source. This deducted amount is informed to the Canada Revenue Agency or the CRA. This happens regardless of the duration of employment in Canada, it can be a day or the entire year. There are a couple of forms that needs to be filled up to this end.
One is the R102-R: Regulation 102 Waiver Application which needs to be filled up more than 30 days in advance before you begin working for a Canadian establishment. The next form is RC473: Non-Resident Employer Certification. This form works as a tax exemption form for all American employees engaged to work in Canada. But this works only for employees working in the short duration of 90 days or less in a year.
Secondly, if you are an American employee working in Canada, only a few particular incomes on Canadian soil can be taxed, not all. In case of your American employer already deducting tax at the source due to your income on Canadian soil, you are eligible to seek tax exemption. You will get a refund if you have earned less than $10,000 CAD or you have stayed for less than 183 days during your employment in Canada.
There are various other factors to consider, which our experts at theaccountingandtax.com will sort out for you.
