Tax treatment of Canadian PR working as Consultant for US firm

[Bazinga]

Hello,

Background:
I am a Canadian PR, just landed 5 weeks ago. I have been working as an IT Consultant with a US based firm since nearly 2 years. It is the same firm I started with in Pakistan and held on to the position after landing in Canada. Every month I send them an invoice and I get my salary wired to my Canadian account. I have set up a home office in Canada where I work from in autonomy. My wife is a Canadian citizen who sponsored me.

Questions:
1. How will my tax be treated here? I do know that I have to pay taxes on my world income.
2. Are there any legal steps I can take to reduce my tax burden?
3. I've been reading something about setting myself up as an incorporation as that extends some benefits. Is this true?
4. Is there any trade agreement between US and Canada that can work to my benefit?
5. What are some of the the tax benefits I can get while paying taxes in Canada?

Please shed some light.

Thanks

 

[One_Topsy]

Hey buddy,

I had similar question as you. Check my thread here: http://www.canadavisa.com/canada-immigration-discussion-board/resident-in-canada-but-work-for-overseas-company-t394804.0.html

What i have been able to gather so far in response to your questions are as follows;
1. Yes, you pay taxes on worldwide income, and In Canada, you pay federal and provincial tax
2. I'm not sure. Probably ask a tax consultabt, but I doubt it

 

[torontosm]

Questions:
1. How will my tax be treated here? I do know that I have to pay taxes on my world income.
2. Are there any legal steps I can take to reduce my tax burden?
3. I've been reading something about setting myself up as an incorporation as that extends some benefits. Is this true?
4. Is there any trade agreement between US and Canada that can work to my benefit?
5. What are some of the the tax benefits I can get while paying taxes in Canada?

1. You will be taxed on your total income. You should ensure that you charge your client the appropriate goods and service tax (HST) as that will have to be remitted to the government on a regular basis. If you don't charge this, you will have to pay it yourself.
2. Yes, see point 3
3. Once incorporated, you can deduct your business expenses against your income. Also, the corporate tax rate is significantly lower than the personal income tax rate, so as long as you keep your money in the company, you will save a bundle.
4. Yes. But it doesn't sound like you are paying any taxes in the US, are you? If so, you can deduct those from waht you owe in Canada.
5. You qualify for tax-sheltered retirement plans

 

[spyfy]

I also am an IT consultant and I am billing my company in Germany for my work.

- You have to report your world income as mentioned by the previous posters. Keep in mind that you also have to pay CPP contributions, which is a significant amount. Let's say you make 35K a year (I chose an arbitrary number here), then your CPP contributions are in the range of 3K to 4K.

- I don't know about the advantages of incorporation regarding taxes.

- There is a foreign tax credit, which means if tax is deducted from your income in another country, they you can ask for an appropriate reduction of your Canadian taxes.

- As mentioned by others, RRSP and TFSA and other tax-sheltered accounts are some of the tax benefits. Also, as a Canadian resident you of course profit of the tax-funded universal health care, which - IMHO - is reason enough to never ever move to the US.

- You don't charge HST for consulting services provided to companies that have no Canadian branch. You still have to register for HST, but when you file HST you have bills of X,XXX Dollars but HST of 0 Dollars. I checked that with two tax consultants, I've been doing it like that for two years and everything is going smoothly

 

[Bazinga]

All,

Thank you very for much for your replies.

I have set up a meeting with a consultant for this week and I will share my findings for everyone's benefit.

@torontosm - that is correct, I am not paying an taxes in the US.

 

[Bazinga]

Based on my meeting I will take the route to incorporate myself.
This way I should be able to lower the tax burden while limiting my disposable income. Registering for HST is also necessary but won't be charged.

I will begin my search to rely on professional services to incorporate myself and fulfill all tax reporting obligations. In everyone's opinion, how much should a professional tax accountant cost me per year in Ontario? I just want to get a rough estimate. This professional will be filing my corporate taxes for me and setting me and my business up for the future.

For everyone's benefit, there is a checklist to honor in order to stand as an incorporation. That can be found on the CRA website, please search for ' RC4110 Employee or Self-employed? ' as I'm not allowed to post links as yet.

Thanks.