Working in Canada + Freelance US Work/Hobby Income??

[timelady]

I'm a US citizen who recently became a permanent resident of Canada. I plan to get a regular office job here in Edmonton, so I will definitely be paying taxes through that route!

I also started doing some freelance-type work shortly before I moved here to Canada:

A) I produce a podcast for a US-based magazine. I get paid $30 every three months. I suppose you could say I "invoice" them, but really, I just send an email reminding them to pay me. Currently, they send me a paper check.

B) I have a Patreon site for my personal blog. People pledge money, and I get paid per blog post. Patreon is located in the US. My earnings are so far less than $50/month. I haven't received payment yet, because I haven't amassed enough to get a payout.

C) I produce a podcast with several other women across the globe. I'm in charge of paying for the hosting services, and we will soon be starting a Patreon page for the podcast so I'll be handling those US-originating funds as well. We'll be putting all the money back into the podcast (minus whatever I have to pay in taxes--to whichever country is appropriate).

Here are my questions:

1) I haven't filed any type of paperwork (in either country) saying I'm self-employed. Do I need to do that? Would that interfere with my ability to find a regular full-time job in Canada? (This is all side-project stuff, almost "hobby income.")

2) I can have Patreon funds mailed to me in Canada as a paper check, or I can have the money direct-deposited to my US bank account (which is still open). Would one be wiser than the other, from an international tax perspective?

3) I'd love to go speak with an accountant/tax professional who's knowledgeable about international banking to make sure I'm doing things right and making smart choices. Does anyone know of a person or service in the Edmonton, AB area that I might contact?

Any help would be greatly appreciated!

 

[Rosie1957]

There's one bit of paperwork you should take care of immediately. In the States, people who are self-employed pay both the employer's and the employee's share of Social Security contributions. In Canada, the same is true of Canada Pension Plan contributions. You certainly don't want to end up paying both! To avoid this, you need to pick a country and get a "certificate of coverage" from that country to send to the other country. See the page entitled "Canada Pension Plan and Employment Insurance Explained" on the CRA for instructions on how to get a certificate of coverage from the CRA if you want to contribute to CPP rather than to US Social Security. If you want to do it the other way around, I suspect that the Social Security Administration (or possibly the IRS) has a similar page - try searching on the phrase "certificate of coverage."

Aside from that, at the level of self-employment you're describing, there's no other paperwork I can think of. You don't need a GST account or a payroll account from the CRA, so you don't need a business number from them. Unless Alberta has some kind of strange regs regarding unincorporated small businesses - you should check this - I think you're clear. I've been doing freelance work on the side in New Brunswick for years without any paperwork.

Do yourself a favour and get a copy of CRA publication T4002, "Business and Professional Income," from their website. That way you'll know right from the start what kinds of records you should be keeping, what kind of expenses you can claim, etc.

When you file your Canadian return, you want to include a form T2125 to calculate and report your net income. Now, here's the tricky bit: when you do your US return, you'll need to report the same income on Schedule C. However, you should be able to then back it out again on a Form 2555 in order to avoid paying any US taxes on it. If you go over the Form 2555 threshhold, try claiming a foreign tax credit on Form 1116.

Important: for purposes of Form 2555, you'll need to keep track of any days you spend in the States during the year.

Why is Canada getting first crack at taxing your self-employment income? Because you don't have a fixed place of business inside the States. Your self-employment income is Canadian source because your only fixed place of business (i.e. your home) is in Canada. Ths is true no matter where your customers live.

None of this is going to interfere with your ability to find a full-time job in Canada. Think about it - you're earning money from US clients and you're going to inject it into the Canadian economy by spending it on your living expenses in Canada. Why would anyone here object to that? *grin*

From a tax perspective, it makes absolutely no difference whether you have the Patreon funds deposited in Canada or in the States. The basic principle remains the same: you're responsible for reporting the money you receive honestly and completely to both tax authorities, the CRA and the IRS. You should be able to avoid duplicate taxation, but you have to report to both.

 

[timelady]

Thank you so much; that's incredibly helpful information! I will definitely send a request for a certificate of coverage STAT.

And I'm going to get the publication you recommend as well (and bookmark this info for when tax time rolls around next year)!

 

[jes_ON]

I also started doing some freelance-type work shortly before I moved here to Canada:

A) I produce a podcast for a US-based magazine. I get paid $30 every three months. I suppose you could say I "invoice" them, but really, I just send an email reminding them to pay me. Currently, they send me a paper check.

B) I have a Patreon site for my personal blog. People pledge money, and I get paid per blog post. Patreon is located in the US. My earnings are so far less than $50/month. I haven't received payment yet, because I haven't amassed enough to get a payout.

C) I produce a podcast with several other women across the globe. I'm in charge of paying for the hosting services, and we will soon be starting a Patreon page for the podcast so I'll be handling those US-originating funds as well. We'll be putting all the money back into the podcast (minus whatever I have to pay in taxes--to whichever country is appropriate).

Here are my questions:

2) I can have Patreon funds mailed to me in Canada as a paper check, or I can have the money direct-deposited to my US bank account (which is still open). Would one be wiser than the other, from an international tax perspective?

3) I'd love to go speak with an accountant/tax professional who's knowledgeable about international banking to make sure I'm doing things right and making smart choices. Does anyone know of a person or service in the Edmonton, AB area that I might contact?

Great advice from Rosie1957.

I don't envy you the paper work for this tax season. One good point is that it is your first year as self-employed in both countries, so you can avoid one headache that I faced when I made some "hobby" income in Canada. I already had done some small scale consulting for a few years in the US before coming to Canada. The first time you report business income in the US, you have to select an accounting method - cash basis or accrual basis. Once you select, you can't change without some kind of special dispensation from the IRS. I had established my accounting method as cash (you report the income in the year you receive payment).

I assumed I would do the same for Canada, but found out (too late) that I was REQUIRED to use the accrual method in Canada. For example, I take contracts that typically last several months (part-time), for example working October 2011-March 2012, getting paid in 2012. In the USA, I had to report all of the income for 2012. In Canada, I had to report as income the amount accrued from work completed (hours worked in 2011) in tax year 2011, and the rest in 2012. GAAHHH! Not only did I have to set up a separate accounting system and recalculate everything for Canada, but I had to submit a revision for my 2011 Canadian return, and pay late penalties...

So - a word of advice - choose the accrual method for the USA! If you do go see an accountant (a good idea if you can afford it), they would hopefully tell you the same thing ...

IRS
www.irs.gov/publications/p535/ch05.html‎

CRA
http://www.cra-arc.gc.ca/tx/bsnss/tpcs/slprtnr/ccntng-eng.html

And if you reach the point of despair in this first year trying to do the accounting, reporting, filing... just know that once you get your system set up, it gets much easier in the 2nd, 3rd year...