Owe Canada?

March 22, 2006 10:02 PM

Canadian TaxFilter: Does a US-based company have to withhold taxes for Canadian residents of Canadian nationality who are independent contractors to the company?

It is clear, to me at least, that Canadian *employees* living in Canada but employed by a US company are not taxed by the US according to the treaty. However, the status of independent contractors is less clear.

The same page states "The tax treaty specifically allows for US companies to withhold income taxes on self-employed Canadian residents...", but it's unclear from here and from evidence on other pages if the company is *required* to withhold until they get proof, or is it simply a case of they're *permitted* to?

posted by RikiTikiTavi to work & money (8 comments total)

I know of someone in this exact situation (Canadian independant contractor, living in Canada, working for US-based company), and no taxes/deductions are withheld from their pay.
posted by bachelor#3 at 11:22 PM on March 22, 2006

IANAL and IANAAccounant. The person I know in this exact situation do not have any taxes/deductions taken from their pay. In Canada, independent contractors are "businesses" (sole proprietorships). They aren't like your 1099s, because they are not in the US on a visa and they are also not employees. The person I know in this exact situation checked with a US accountant and various Canadian government websites. This person is very diligent and worked for, among other firms, a Fortune 50 firm, so I am confident the person is right. YMMV.
posted by acoutu at 11:32 PM on March 22, 2006

Or a good speller.
posted by acoutu at 11:32 PM on March 22, 2006

Dave Shea who maintains the site called Mezzoblue ran into this issue and prepared a helpful article on the question.
posted by mikel at 5:19 AM on March 23, 2006

All my income derives from US sources even though I live in Canada. I am now incorporated and employed by my own corporation but before I did this I was in this situation. I never had any taxes withheld. The companies paying me were entities like Universal Studios, who are sticklers for this kind of thing (for example, I am contractually obliged to provide them with proof that I have a work permit to work in Canada).
posted by unSane at 5:31 AM on March 23, 2006

No, you don't have to withhold taxes for independent contractors, full stop. This is the good/bad part of independent contractorness.

Secondary, related question: would the Canadian actually owe any taxes on their income from a U.S. company? (Completely different from the withholding question...) The answer to that is no, as long as the work was performed in Canada.
posted by jellicle at 5:34 AM on March 23, 2006

But they would owe taxes to the Canadian government, Jellicle.
posted by acoutu at 4:48 PM on March 23, 2006

Also, you don't need to charge your client GST if they're in the US.
posted by bachelor#3 at 12:28 PM on March 24, 2006