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US resident with Canadian income via T4A-NR

Personal Finance & Money Asked on November 26, 2020

I am a single person LLC in the US and I do a lot of contract work for a US company. In 2016 I was asked by them to do some work in Canada and spent about 30 days working in Vancouver. My LLC issued invoices to the US company to charge for this work. When these invoices were finally paid, it was by their sister company in Canada (via bank direct transfers to the bank account of my LLC) and not by the US company to who I sent my invoices (and I am a bit pissed about not being told about that up front). For taxation purposes I am using pass through taxation in the US (for better or worse) so the taxation issues of my LLC are my personal taxation issues.

Now my US CPA has told me that technically I have to file a tax return in Canada, but that is not something that they can do for me. In the process of telling me this they told me that the Canadian company that paid me should have issued me with a T4A-NR (which they have not – but I have started looking into this). But that the filing will basically involve reporting the income and then invoking a tax treaty to get credit in Canada for the taxation I will pay on the income in the US (or that’s how I basically understand it).

To ease my burden, my CPA said that they have a connection in Canada who can prepare my return for me, however the quoted price seemed very steep, and in line with what I would pay my CPA in US for my full tax return.

Finally to the questions:

  1. I (sort of) accept the need to file in Canada, but will that entail filling the equivalent of the full tax return that I would file in the US? Or do I only need to document the particulars of the actual Canadian income?

  2. I have no experience with filing a Canadian return, let alone one with cross border incomes, so is this something that can be handled by an individual (with something like Turbo Tax for example) or is this best left to the professionals?

  3. I am reporting this income in the US (I don’t want the IRS breathing down my neck) so will be paying tax on it here. But if I don’t file a Canadian return what sort of penalties could I be up for? (From what I understand this would require the CA authorities to audit the Canadian company that paid me and ask them to explain why they didn’t issue a T4A-NR to me etc)


Anyone????

One Answer

As per the Canada-U.S. Tax Treaty (the “Treaty”), a U.S. corporation carrying on business in Canada is only subject to taxation on income earned in Canada through a fixed place of business or permanent establishment. Therefore, if a U.S. company does not have a permanent establishment (PE) in Canada then their Canadian source business income is not subject to Canadian federal tax.

https://www.fin.gc.ca/treaties-conventions/USA_-eng.asp

Answered by freeTaxAdvice on November 26, 2020

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