Under the US – Canada tax treaty you will not be required to pay tax in the US on your US source income as long as you do not have a “permanent establishment” in the US. A permanent establishment is defined in Article V of the treaty as:
2. The term “permanent establishment” shall include especially:
(a) a place of management;
(b) a branch;
(c) an office;
(d) a factory;
(e) a workshop; and
(f) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources.
If you don’t have a place of business in the US that meets any of these definitions you’ll probably be ok. However I usually like to file a “protective return” with the IRS to ensure that the treaty disclosure has been filed. You would report your US source earnings on an 1120-F tax return and take a “treaty deduction” for the same amount using a form 8833. Also note that you’ll have to obtain a employer identification number from the IRS in order to file the appropriate returns.
You’ll also have to consider any possible State tax issues that may arise as a result of State nexus.
Hope that helps and feel free to give me a call if you have any further questions.
Phil Hogan, CA
If you would like to reach me to discuss a tax or accounting matter please call 250-381-2400 or email me at email@example.com.
The accounting and tax information provided on this website is for informational purposes only and does not represent binding professional advice. Appropriate tax treatment and advice will depend on an individuals particular circumstances and set of facts.