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We have a remote location employee that is moving across the border into Canada. What did you do with employement taxes?

Mary Schick's Profile

We are a US company.  Should we continue to withhold Federal taxes?  The employee wants to still work remotely for us.  The job duties don't fit being a contractor.  Any suggestions to avoid problems in reporting and filing for the Company and the employee?

Answers

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Question: Is the worker a US Citizen or not.

If a US Citizen, continue to w/h as normal (as well as State/Local). That person will have to file an IRS 8088 to obtain a IRS 6166 (proof of taxpayer status) in the US and provide it to the Canadian tax authorities per the Tax Treaty and double taxation.

If they are not a US Citizen and are not working in the US, no taxes need to be deducted.

Topic Expert
Vernon Reizman
Title: CFO
Company: RCM Industries, Inc.
(CFO, RCM Industries, Inc.) |

Once he establishes residency in Canada then you need to start remitting Canadian taxes. The easiest solution would be to call ADP Canada and register to run a one person payroll with them. Will be fairly inexpensive and they will take the lead in filings. (Personal note to Mr Johnson above, Canada is already a step ahead with providing health care for its citizens and various employee protections at the expense of the employer. We have a long way to go in this regard so no need to worry)

Topic Expert
Stephen Wares
Title: International Expansion Expert
Company: CCW Business Solutions
(International Expansion Expert, CCW Business Solutions) |

Mary, you should also take in to consideration the potential for the US Company to create tax-nexus in Canada and consider whether you should establish a branch or a subsidiary to hire this employee. It is likely that ADP will require you to have a basic ' business registration' in order to establish a local payroll but I would recommend speaking with a Canadian attorney (perhaps start with your US attorney as they may already have experience with US/Canada issues).

Topic Expert
International Representative
Title: International Expert
Company: Nair & Co.
(International Expert , Nair & Co.) |

If the employee is based out of Canada and satisfies the test of residency then he will be liable to tax in Canada. The employer would need to withold taxes in Canada and the taxes witheld can be offset against his tax liablity if any in the US.

Kevin O'Shaughnessy
Title: CFO
Company: SRS, Inc.
(CFO, SRS, Inc.) |

Be careful with this decision. It may also make your company liable to assess, collect and remit Canadian taxes on products and services as it will definately give your company Nexus in that province. This is not a decision to be taken lightly.

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