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I am a single person LLC in the US and I do a lot of contract work for a US company. In 2016 I was asked by them to do some work in Canada and spent about 30 days working in Vancouver. My LLC issued invoices to the US company to charge for this work. When these invoices were finally paid, it was by their sister company in Canada (via bank direct transfers to the bank account of my LLC) and not by the US company to who I sent my invoices (and I am a bit pissed about not being told about that up front). For taxation purposes I am using pass through taxation in the US (for better or worse) so the taxation issues of my LLC are my personal taxation issues.

Now my US CPA has told me that technically I have to file a tax return in Canada, but that is not something that they can do for me. In the process of telling me this they told me that the Canadian company that paid me should have issued me with a T4A-NR (which they have not - but I have started looking into this). But that the filing will basically involve reporting the income and then invoking a tax treaty to get credit in Canada for the taxation I will pay on the income in the US (or that's how I basically understand it).

To ease my burden, my CPA said that they have a connection in Canada who can prepare my return for me, however the quoted price seemed very steep, and in line with what I would pay my CPA in US for my full tax return.

Finally to the questions:

  1. I (sort of) accept the need to file in Canada, but will that entail filling the equivalent of the full tax return that I would file in the US? Or do I only need to document the particulars of the actual Canadian income?

  2. I have no experience with filing a Canadian return, let alone one with cross border incomes, so is this something that can be handled by an individual (with something like Turbo Tax for example) or is this best left to the professionals?

  3. I am reporting this income in the US (I don't want the IRS breathing down my neck) so will be paying tax on it here. But if I don't file a Canadian return what sort of penalties could I be up for? (From what I understand this would require the CA authorities to audit the Canadian company that paid me and ask them to explain why they didn't issue a T4A-NR to me etc)


Anyone????

  • This question is on-topic, because it relates to your personal income. FWIW, we don't categorically consider questions arising from LLCs or corporations as off topic. What matters is that (a) there is one owner of the [private] business and that owner is the sole employee, and that (b) the question relates to the owner's personal income, including the taxation of it. – Chris W. Rea Mar 28 '17 at 21:39
  • Could you clarify: Was it your LLC that got paid for the work you did in Canada, or did you yourself personally get paid? That is, did your LLC supply the invoice and did your LLC receive the bank transfer in its own bank account? Else, what? – Chris W. Rea Mar 28 '17 at 21:43
  • @ChrisW.Rea It was my LLC that invoiced the US company and it they Canadian company made the transfer into my LLC's bank account. – Peter M Mar 28 '17 at 21:58
  • What was the nature of the work that you did in Canada and was it all in one location? – mikeford Mar 31 '17 at 22:11
  • @mikeford It was upgrading computers and installing software, and yes all in Vancouver BC. – Peter M Apr 1 '17 at 12:55
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As per the Canada-U.S. Tax Treaty (the “Treaty”), a U.S. corporation carrying on business in Canada is only subject to taxation on income earned in Canada through a fixed place of business or permanent establishment. Therefore, if a U.S. company does not have a permanent establishment (PE) in Canada then their Canadian source business income is not subject to Canadian federal tax.

https://www.fin.gc.ca/treaties-conventions/USA_-eng.asp

  • Can you point me to which paragraphs in the linked page support this? – Peter M Apr 6 '17 at 22:18
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    This probably doesn't apply here, but as a general remark, be careful of article XXIX paragraph 2 (the "saving clause") when reading the US-Canada tax treaty. It invalidates many treaty protections from other articles in the treaty, which could cause some nasty tax-planning surprises. – B Chin Apr 7 '17 at 5:05

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