Canadian residents that live or work in the United States are likely subject to US tax requirements. While the Canada Revenue Agency (CRA) only subjects Canadian residents to income tax requirements, the US income tax requirement is based on residence or citizenship and is administered by the Internal Revenue Service (IRS). The Canada-United States Income Tax Treaty of 1980 and the following Protocols allow for exemptions in the income taxation lobbied by the US on Canadians, but Canadians residing in the US are still required to file US income tax returns. On top of that, the following paragraphs will address four things that Canadians should know about being taxed in the US:
#1. Goods bought in the US
If a Canadian traveler visits the US, he or she may qualify for a small tax exemption on goods purchased during their trip depending on the length of their stay and/or the retail cost of the goods purchased. Specifically, if the traveler is in the US for 24+ hours, he/she can receive an exemption on goods purchased up to CAN$50, provided that those goods contain neither alcohol nor tobacco. However, if the total worth of the goods brought back to Canada exceeds CAN$50, duties and taxes will be charged on the entire purchase. Further, if the traveler is in the US for less than 24 hours, applicable duties and taxes will be charged and the traveler will receive no exemptions.
Canadian travelers returning to Canada after 48+ hours who have purchased alcohol or limited tobacco products are allowed to bring in goods valued up to CAN$400 tax and duty free. Travelers spending 7+ days in the US can bring back CAN$750 in exempted goods. Visit the CRA website to view alcohol and tobacco product exemptions based on the length of your stay in the US.
#2. Income Tax Exemptions for Employees
Canadian residents who are not citizens or residents of the US may be taxed by the IRS if they work one or more days in the US, unless they meet all of the following exceptions:
-Must work for a non-US company/entity
-Earnings for US work must not exceed US$3,000
-Employee spends 90 or less days in the US in a given calendar year
Further, if a Canadian employee’s yearly pay is less than US$10,000, or if the employee works in the US for less than 183 days and is paid by a non-US entity, he/she may be exempt from US taxation as well. Also, employees in the US on a J Visa, otherwise known as a trainee visa, are exempt from US taxation as well, provided a-non-US employer is compensating the employee.
#3. Moving Expenses
Typically, situations involving relocation and the company reimbursement of expenses therein for the accommodation of employees will be exempt from taxes in both the US and Canada. Generally this exemption will apply to any situation in which a Canadian employee has been transferred to a US location, similar to the allowances provided to Canadian employees who are transferred to a Canadian location other than their place of residence. However, unlike Canadian relocation rules, the US does not allow tax exemptions for expense reimbursements for actions including:
-Searching for a house/residence
-Closing costs when buying/selling a house
-Home loss reimbursements
-Temporary living reimbursements
-Monies given to support relocation in the form of an allowance (unsupported by expenses)
Further, the reimbursement of expenses involved in moving one’s family or personal belongings is usually taxable as well, if the employee is away from home for less than 12 months.
#4. Social Security
Because the US Social Security contributions are significantly higher than the contributions required by the CRA, Canada and the US created the Agreement on Social Security (Between the US and Canada), or the “Totalization Agreement,” that allows Canadian employees to to be covered by the Canada Pension Plan, or the CPP, for up to five years (60 months). The employee would be exempt from contributions to Medicare and US Social Security for the same time frame as well. Canadian employers must make requests for this kind of exemption by completing a Certificate of Coverage from the Department of National Revenue, and the employer will be required to show CPP contributions by filing a T-4 each year.
Canada and the US have gone to great lengths to find appropriate tax exemptions in an effort to ensure that business and travel between the two countries remains desirable. Exemptions involving income tax, social security, purchases, moving expenses, and more can be found in greater detail at the CRA website, and specific questions should be addressed by a tax professional to ensure compliance with all Canadian and US tax laws.