Canada and US Tax Residency and Permanent Establishment during Covid-19 Travel Restrictions

Canada and the U.S. introduced relief from tax residency and permanent establishment to foreign nationals and businesses who unintentionally remained in either country unable to leave during the Emergency Period resulting from Covid-19. While Canada allows foreign nationals and businesses with no PE in the ordinary course of business to completely void the days during March 16 and June 29, 2020, the US limits the exclusion to only 60 consecutive days selected between February 1 and April 1, inclusive. Watch for the US overriding treatment of income generated by foreign nationals during the Emergency Period. The income will retain US source character and thus maybe taxable at the federal and/or state levels, unless it is less than USD $3,000 or protected under a bi-lateral income tax treaty. To claim the treaty benefits, one still needs to file a US personal or corporate return.

Double Taxation Risk for Canadian Independent Contractors with California Clients

In this incredible age of technology, it becomes easier and easier to work for anyone from anywhere with each passing day. This has proven to be of particular benefit during the current pandemic. But outside of shelter-in-place or work-from-home orders, the whole world is potentially open for business for independent contractors who provide remote services.

The downside, of course, is that it is now also much easier to find yourself in unknown territory, and I’m not just talking about geography. You see, this type of remote transacting can bring about unpleasant tax exposures that will catch you off guard, particularly if you’re a Canadian independent contractor.

Let’s look at the Golden State. The State of California’s tax agency, the California Franchise Tax Board (FTB), has apparently earned a reputation for imposing high individual (as high as 13.3%) and business tax rates and is notorious for their aggressive enforcement and collection activities. Much like the Internal Revenue Service (IRS), the FTB casts its net far and wide, and they have a unique set of regulations in place to ensure they bring in the largest possible haul… more details check out the video

This video presents a discussion on Canadian and US tax implications arising from working remotely for a foreign employer in a traditional commuter employment arrangement.