US full-time contractor v.s CAD Full-time Employee

[nilz]

Hi guys,

I have two options given by a U.S company to me. I have the choice to be payed 160k USD or 218k CAD

1) If you'd like to get paid in USD, you will be hired as a contractor per our third party payment platform. (don't worry you're still considered a full time employee as far as we're concerned). This means you'll be taking care of your own taxes and such since you will be set to contractor mode. But the advantage is that you'd be pegged to USD.

2) If you'd like to get paid in CAD, you will be hired as a full time employee per the platform and it will take care of all the usual country specific-taxes. But you'll be pegged to CAD. This means if there are variations in the exchange rate (e.g. not favorable to you) we won't be able to adjust. We can revisit any exchange-rate adjustments only about once a year.

My questions is for option 1. Am i considered a sole proprietorship and will I be able to write off some of expenses as business deductions if I stay as a sole-prop or maybe even incorporate. Any tax benefits to taking either? Would like some help here. Thank you

 

[zango11]

@nilz Go with Option 2.

As an employee, your employer pays holiday pay, vacation pay, CPP and EI contributions (employer portions), Workers Comp, and you accumulate RRSP room, and you are protected by the Employment Standards Act of your province. They might have a health plan or benefits plan or STD/LTD group plan as well.

Being a sole prop or incorporated usually would command a 30% premium (rule of thumb) jist to be equivalent.

 

[xxjklivinxx]

@zango11 Your right, basically will qualify for a Canadian pension… however wondering what their taxes in the US will be

 

[helen2002]

@xxjklivinxx There's no taxes in the USA either way, they're a full-time contractor providing personal services in Canada.

US taxation only applies if 1) they are physically in the USA providing personal services, or 2) the company screws everything up by putting them on their US payroll which is wrong on so many levels but it happens enough that people are convinced it's okay.

 

[bobyi]

@helen2002 Or 3) they hold US citizenship and are considered an alien abroad in US tax law.

 

[angeldawn]

@bobyi Then they have to file taxes in both countries

 

[xxjklivinxx]

@helen2002 They still have to file a return and will get a foreign tax credit for taxes paid to Canadian authorities

 

[rita1989]

@xxjklivinxx No this is not correct as an independent contractor.

 

[xxjklivinxx]

@rita1989 All US citizens have to report their world income.

 

[rita1989]

@xxjklivinxx OP is not a US citizen (to my understanding)

 

[xxjklivinxx]

@rita1989 ok. I thought he was a US citizen working in Canada for a US company.

 

[thecup]

@nilz The CRA can come at you and say that you don't meet the requirements of being self employed and that regardless of your employer's arrangement, you are a full time regular employee.

Go here and read the Employment Status section for the full details, but the CRA makes a judgment call based on whether you and your employer have an employee relationship, or whether you truly are a separate contracted entity with control of your schedule, work decisions, etc.

I've been dinged like this before when I was a "contractor" for a Canadian telco, luckily I didn't try to juice the system with expenses because they would have been denied.

 

[sabrinawood]

@nilz Do you plan to stay in Canada for the foreseeable future?

if so Pick Option 2:

If you think you might like to relocate to another country and work from there, Option 1 gives you the mobility and has your money in a more transferable currency.

Option 1 is grossly underpaying you compared to Option 2 if you're remaining in Canada.

 

[faithfulmommy1821]

@nilz The contractor position doesn't sound like it would qualify as an independent contractor position. One CRA audit and they will deem you an employee and back charge any deductions.

The two amounts are currently equal and you take a risk that the Canadian dollar would increase, which I think is the more likely scenario. You don't get any benefits from EI or CPP while you work there, or workplace insurance coverage. What kind of notice period is your contract getting?

It sounds like the company is just trying to save money and you give up more than you gain.

 

[treeheart]

@faithfulmommy1821

The contractor position doesn't sound like it would qualify as an independent contractor position.

Is it because they have a presence in Canada (I supposed they do if he'd be an employee?)

Or is it because he'd be full time for that one client, even if the company had no presence in Canada?

 

[faithfulmommy1821]

@treeheart OP would pay income tax to the Canadian government because they are still a resident of Canada, Even if they did it as a contractor or incorporated themself.

 

[juliajulia123]

@treeheart If you are working full time for one client for an extended period of time, they will probably classify you as an employee. Other things like work hours, who supplies equipment, etc... Also factor in though.

 

[miku]

@faithfulmommy1821 Not for a USA based company. They have no reach there.

 

[nilz]

@miku Sorry, to clarify. For a USA based company, what doesn't the CRA have reach towards. (as in the Auditing?)

 

[sexyme1]

@nilz He thinks the CRA can't send a bill to an USA corporation but that's not how tax law works, ignore it. The CRA can determine you're actually an employee.