I am a U.S. citizen and U.S. resident but I do contract work in Canada about six days a year. The company that I work for in Canada deducts Canadian income taxes from my pay cheques. Since I also am taxed in the U.S. on these funds, is there any way I can recover the Canadian income tax?
Under Canadian tax law a non-resident of Canada who was employed in Canada is required to pay tax on their taxable income earned in Canada for that year. For a little clarity and given you only earn employment income in Canada 6 days a year you are only required to pay tax, what is termed Part I tax, on the employment income earned in Canada. Be aware that if you happen to be in Canada and not necessarily work in Canada for 182 days or more, you will be deemed to be a Canadian resident and subject to Canadian tax on your worldwide income.
Despite being liable for Canadian tax, Article XV of the Canada-US Income Tax Treaty has two special rules that may apply in this situation. If you earned employment income in Canada you do not need to pay tax in Canada if your employment income was less than $10,000CAD. If your employment was in excess of $10,000 you will pay Canadian tax on the whole amount of your Canadian employment income.
You may want to file or be required to file a Canadian tax return (a T1-NR) if not enough tax was deducted or if you are due a partial refund due to the application of certain deductions and credits.
The above may be irrelevant as you may be able to claim the tax paid in Canada either as a tax credit or as an itemized deduction on your U.S tax return. Subject to certain limitations, if you claim the credit against your US taxes which eliminates the double taxation.
The following links may provide some additional assistance:
- http://www.cra-arc.gc.ca/tx/nnrsdnts/ndvdls/nnrs-eng.html – Note that as mentioned above you fall within Part I tax only. See the subsection entitled “Part I tax” and “Filing your income tax return.”