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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 15607
Experience:  15years with H & R Block. Divisional leader, Instructor
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I am a U.S. Citizen who worked in Canada as an independent

Customer Question

I am a U.S. Citizen who worked in Canada as an independent contractor who resides in the U.S.. One of the companies I worked for held taxes back. I thought since I am not an employee and I live in the U.S. I didn't pay taxes to the Canadian government. I do not have a business residence in Canada and only go to customer sites. Are they correct.to hold back taxes? Do I have to file a tax form in Canada? Will I get a refund, or do I get a credit on my U.S. Taxes instead?
Submitted: 1 year ago.
Category: Tax
Expert:  Robin D. replied 1 year ago.

Hello

If you were actually in Canada performing the service then taxes would generally apply. The Canadian busienss would withhold payments to Non-residents 25% tax on amounts subject to Part XIII tax (taxable amounts). However, this rate can be reduced to a lower rate or an exemption can be given under the provisions of the Income Tax Act or a bilateral tax treaty.

The tax treaty between the US and Canada does allow for certain exemptions on the tax. It woudl depend how long you were in Canada.

Under the treaty, U.S. residents who earn income in Canada are only subject to Canadian income tax on certain types of income, including income earned from employment in Canada, income earned from business conducted in Canada, and capital gains derived from taxable Canadian property. In turn, Canadian residents are only subject to U.S. income tax on income effectively connected with a trade or business in the United States and income from the United States that is fixed, determinable, annual or periodical.

The treaty provides exemptions for employment income below $10,000 a year (in the currency of the country in which the work is rendered). Individuals may also be exempt if they earn more than that amount, but are not physically present in the neighboring country for 183 or more days in the 12-month period, and if the income is not paid by or on behalf of a resident of the neighboring country.

As they already withheld you can claim a tax credit on your US return for the taxes withheld in Canada. Form 1116 is used for this.

Expert:  Robin D. replied 1 year ago.

If my answer addressed your question please rate below or above (let me know if you have difficulty as I believe the system changed), if you need more information reply below.