American living in Canada as PR, working remotely for U.S. company with no ties to Canada

[jacob71492]

Hey all - I'm an American and have been in Canada for about 7 months now as a temporary foreign worker. I was recently recruited by a U.S. company to work remotely. This company is a startup, and has no offices/branch in Canada. I'd like to stay in Canada as my partner resides here, so I plan on applying for PR as soon as I take the CELPIP (I have advanced degree, and will have plenty of points).

Assuming I get my PR and can legally reside in Canada after my work permit expires, I'm wondering what the tax implications would be for me, an American living in Canada as a PR, but working remotely for a U.S. company. I'd be on U.S. payroll, receiving income into my U.S. bank account, have income withheld for IRS, be issued a W2, and have other American benefits (health insurance, 401k, stocks).

I understand Canada taxes based off residency. Would it be a matter of filing both Canadian and U.S. tax returns - paying the CRA at tax time, and then receiving a refund from the IRS (due to tax treaty b/w the two countries)? I'd likely pay the difference in more taxes to the CRA due to Canada's higher tax rate.

I'm seeing a bunch of folks talk about PEOs, setting up your own company, independently contracting, etc...but this just seems overly complicated for my situation. I'd be a U.S. citizen legally working for a U.S. company, and (soon to be) a Canadian PR legally residing in Canada. At the end of the day, it appears I need to keep the CRA happy by paying taxes, and get the difference back from the IRS once I apply the foreign tax credit. Thoughts?

 

[jclarke99]

Hey all - I'm an American and have been in Canada for about 7 months now as a temporary foreign worker. I was recently recruited by a U.S. company to work remotely. This company is a startup, and has no offices/branch in Canada. I'd like to stay in Canada as my partner resides here, so I plan on applying for PR as soon as I take the CELPIP (I have advanced degree, and will have plenty of points).

Assuming I get my PR and can legally reside in Canada after my work permit expires, I'm wondering what the tax implications would be for me, an American living in Canada as a PR, but working remotely for a U.S. company. I'd be on U.S. payroll, receiving income into my U.S. bank account, have income withheld for IRS, be issued a W2, and have other American benefits (health insurance, 401k, stocks).

I understand Canada taxes based off residency. Would it be a matter of filing both Canadian and U.S. tax returns - paying the CRA at tax time, and then receiving a refund from the IRS (due to tax treaty b/w the two countries)? I'd likely pay the difference in more taxes to the CRA due to Canada's higher tax rate.

I'm seeing a bunch of folks talk about PEOs, setting up your own company, independently contracting, etc...but this just seems overly complicated for my situation. I'd be a U.S. citizen legally working for a U.S. company, and (soon to be) a Canadian PR legally residing in Canada. At the end of the day, it appears I need to keep the CRA happy by paying taxes, and get the difference back from the IRS once I apply the foreign tax credit. Thoughts?

I will soon be in the same boat as you. My research suggests (but independently verify yourself)...
- It's still a bit fuzzy to me, but I get the impression that, even as a U.S. citizen, you cannot legally be a full-time W2 employee as a resident of Canada
- But let's say you do receive a year end W2 statement. You're likely to have U.S. tax withholdings. But given that you'll owe taxes to Canada first (see below), I'm not sure how you'd get credit or the return of your U.S. withholdings (and then there's the matter of Social Security, Medicare payments , etc.).
- For this reason, individuals in your situation look into the PEO option or independent contracting
- Both of these options entail paying taxes to Canada first, and then taking foreign tax treaty credit on your U.S. taxes
- If you go the independent contracting route, you should do work for more than 1 company (i.e., you don't want the appearance that you're really an employee of the U.S. company, but getting around it by being an independent contractor).

 

[jclarke99]

As I dig into this some more, I'm finding that there's a significant legal situation for your U.S. employer if they are issuing you a W2 and basically treating you as if you were residing in the U.S. even though you're a PR of Canada (and living in Canada 183+ days a year).

Here are some quotes/posts from U.S. employers on this topic...

"From an employers perspective, the main issue is that they wouldn’t be compliant with Canadian Employment laws and standards. They wouldn’t be making your CPP contributions and would be liable to a heavy penalty. Also the employment contracts between US and Canada are quite different with Canada having significantly more employee friendly terms when it comes to termination of employment. So your employer may not be able to part with you at-will." https://community.movnorth.com/t/is-it-possible-to-work-remotely-in-canada-for-a-us-company/5885/5

"As a small employer, it might cause all kinds of unforseen problems. If you decided to move to Mexico or Canada, I might have to let you go or renegotiate employment.

1) I have legal responsibility for employees in California in terms of healthcare, taxes and employment benefits. The companies I contract with to provide that (especially taxes/payroll/healtcare/401k) may not fulfill or count employees in Canada. My legal responsibilities to you as an employee would no doubt change as well. California is a right to work state, which is part of the reason I like to do business there. Canada is more socialist.

2) I may have to file taxes with Canadian govt. That is more work and potentially cost. Suddenly I may have to do international banking which may cost my business account more.

3) My company may have other problems working in other countries in NA, including trademark, patent/copyright, shipping, etc. etc."

https://arstechnica.com/civis/viewtopic.php?f=25&t=1162965

 

[chs]

I literally just encountered this and am documenting my experiences here: https://www.canadavisa.com/canada-immigration-discussion-board/threads/us-citizen-in-canada-pr-working-for-us-company-as-an-fte-paid-into-us-bank.708547/

Bottom line: It's extremely painful as a US person earning US income in Canada for a US company as an FTE paid into a US bank account - you better have a damn good accountant and I hope you have deep enough pockets to up-front the tax load for the first year; it ain't cheap by a long shot. Then there is the possibility that the company paying you is actually breaking either US or Canadian tax law, or, if you're lucky, both. Not trying to be a Debbie Downer, but best of luck.