Working in Canada as an American

January 14, 2019

Personal Tax Return Toronto

As American who works in Canada, there are a few necessary points the one must be aware of when it comes to tax obligations.

The first point is being a resident or a non-resident of Canada. There are three factors that could possibly dictate such an outcome, the first being – where is your permanent home located? The second – where is your family located (spouse/kids)? The third factor is – Where are your personal and economic ties strongest? In Canada or the U.S.? Naturally, the more ties one has with Canada, they are going to be considered a Canadian citizen. Non-Residents of Canada are taxed solely on their Canadian income while the other hand, a resident of Canada is required to pay income on their income worldwide.

Secondly, residency status is determined by the Canadian government if one stays in Canada for 183 days or longer, and therefore are liable for Canadian tax laws, as such, one must file a Canadian personal income tax return for the year, due on the 30th of April.

Thirdly, there are three basic categories for filing a tax return in Canada:

Category 1: The employee works for a Canadian employer and receives a T4 slip. This slip indicates the amount of income made and the amount of taxes deducted directly from the income.

Category 2: The employee receives a W2 slip from a U.S. employer and only worked for a few months for a Canadian employer, the employee is still liable to pay taxes based on the amount of time spent working in Canada despite not receiving a T4 slip.

Category 3:  The employee receives a W2 and a T4 slip from the U.S. employer. In this case, the tax is being deducted twice from both the Canadian and the U.S. employer.

Per category 3 and its double taxation laws, it can be avoided. To do so, one must have a waiver filled, called Form W4, to reduce U.S. payroll taxes.

The fourth point is Foreign tax credits. As a U.S. citizen with a green card, one is required to pay taxes on their worldwide income and pay taxes on their Canadian income as well. To avoid this issue of double taxation, one can claim a foreign tax credit on income gained in America.

The fifth point is Social Security Taxes. As an American working in Canada, it is required to contribute to Canadas Pension Plan, and the same time pay social taxes to the IRS, as a result, social security is paid twice. To avoid this problem, one can obtain a Certificate of Coverage from the CRA to be exempt from paying social security taxes.

And the last point, if one is considered to be a tax resident of Canada, they are mandated by the law to disclose any international assets worth more than $100,000.

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