Independent Contractor working for a US-based company

[awaitforitb]

Hi,

Me and my wife will be moving to Canada in a couple of months. My wife will continue to work for her current employer from Canada but as an independent contractor. Instead of being paid hourly, she will be given a fixed salary which will be paid monthly. She is required to send a monthly invoice to her employer. Does anyone know what needs to be included in the invoice? Specifically, any taxes that needs to be included. Her company has asked us to figure it out and let them know. I am not sure if I am asking all the questions here. People who have done this in the past would love to know your experience. Also, let us know if she should file for sole proprietorship.

Thanks.

 

[jclarke99]

I recommend that you review the following 2 links.

https://dev.to/canosielabs/canadians-beware-the-personal-service-business-4kbk

https://diaryofatorontogirl.com/2019/03/18/canadian-income-taxes-freelancer/

 

[awaitforitb]

Based on the links it seems no one can work for their current US employer if they move to Canada. Especially the ones who don't have a Canadian presence. Working as a PSB doesn't seem an option with the exorbitant 45% tax rate. Also, there seems to be no middle ground. Did I get that correct?

 

[jclarke99]

Would you be able to have your US employer as your main "client", and also do some consulting for some other clients? As you know by now, the link specifies ways to minimize being classified as a Personal Service Business (PSB).

Alternatively, would your employer be open to making use of a Canadian cross-border Professional Employer Organization (PEO)? They would hire you, deal with all of the labor/HR matters, and lease you out to your US company. You would NOT have to jump through all the hoops to avoid being classified as a PSB. The PEO would take a fee, so that would be a consideration for your US company.

 

[hyong1991]

Based on the links it seems no one can work for their current US employer if they move to Canada. Especially the ones who don't have a Canadian presence. Working as a PSB doesn't seem an option with the exorbitant 45% tax rate. Also, there seems to be no middle ground. Did I get that correct?

45% is only on the business income, once the money goes into the business , and if you declare a salary, that's taxable as well, so the eventual tax rate is >45% probably it's around 60%+

TLDR, Do not go this route !!!!!

 

[red_rom]

Hi,

Me and my wife will be moving to Canada in a couple of months. My wife will continue to work for her current employer from Canada but as an independent contractor. Instead of being paid hourly, she will be given a fixed salary which will be paid monthly. She is required to send a monthly invoice to her employer. Does anyone know what needs to be included in the invoice? Specifically, any taxes that needs to be included. Her company has asked us to figure it out and let them know. I am not sure if I am asking all the questions here. People who have done this in the past would love to know your experience. Also, let us know if she should file for sole proprietorship.

Thanks.

Are you looking for the line items in the invoice ? Could you please clarify, you mentioned she would be a self employed and also on a fixed salary. Did you mean, she would be guaranteed a fixed number of hours per month. In that case, if I assume she is an independent contractor and draws salary from her incorporation (self employed), I could give you few line items in the invoice that her company needs to include, things like (EI, CPP, HST etc.).

Yes, it would be good to have a self employment, but there are certain issues, we could address that later.

 

[canuck78]

Based on the links it seems no one can work for their current US employer if they move to Canada. Especially the ones who don't have a Canadian presence. Working as a PSB doesn't seem an option with the exorbitant 45% tax rate. Also, there seems to be no middle ground. Did I get that correct?

Would suggest meeting with an accountant specializing in US/Canada taxes. Had you not researched when planning on moving to Canada?

 

[anthorana]

45% is only on the business income, once the money goes into the business , and if you declare a salary, that's taxable as well, so the eventual tax rate is >45% probably it's around 60%+

TLDR, Do not go this route !!!!!

Really? 45%??
Im in that same situation, a us company wants to hire and pay a fixed salary here in QC to do work in the US.

 

[canuck78]

Really? 45%??
Im in that same situation, a us company wants to hire and pay a fixed salary here in QC to do work in the US.

A US company can't pay you like an employee in Canada. You should be researching or meeting with an accountant to determine the best way to set up your consulting business.

 

[anthorana]

Sorry you are right, they want to pay me as a contractor!

 

[Copingwithlife]

Sorry you are right, they want to pay me as a contractor!

Then you have to check with an accountant. Do you go the sole proprietor route , or do you incorporate? Do you register for a GST HST number when you’re no longer a small supplier ? Even though the client is the states and would be zero rated, if you’re above the threshold you register .
If you’re a sole prop , it’s taxed at the individual province tax rate . If you incorporate, it’s at the corporate rate . If you incorporate, do you take out paycheque , or go the dividend route ?
As mentioned, check with an accountant.
If you incorporate you MUST file a T2 every year to remain compliant.

 

[jclarke99]

Then you have to check with an accountant. Do you go the sole proprietor route , or do you incorporate? Do you register for a GST HST number when you’re no longer a small supplier ? Even though the client is the states and would be zero rated, if you’re above the threshold you register .
If you’re a sole prop , it’s taxed at the individual province tax rate . If you incorporate, it’s at the corporate rate . If you incorporate, do you take out paycheque , or go the dividend route ?
As mentioned, check with an accountant.
If you incorporate you MUST file a T2 every year to remain compliant.

Helpful info. What is the "threshold" for registering?

 

[Copingwithlife]

Helpful info. What is the "threshold" for registering?

$30k over four rolling calendar quarters

Example , if you have $32k in invoiced sales
$30k is from customers in the States . So point of sale is 0%
The other $2k is from clients in Ontario
Rate is harmonized at 13%
So you collect on the $2k
Still report the $30k but at 0%
Note once you hit $30k registration is mandatory, below that it’s voluntary