When Does the IRS Inform the Canadian Revenue Agency (CRA) About Canadians Earning Income from a US Employer?

Understanding Canadian Tax Residency Status

The first thing that needs to be clarified is the determination of your tax residency status for Canadian tax purposes. If you are not considered a Canadian tax resident, the Internal Revenue Service (IRS) would have no reason to inform the Canadian Revenue Agency (CRA), since you are not subject to Canadian taxation. Consequently, CRA would have no interest in your tax affairs.

However, there are scenarios where your tax residency status involves more complex situations. For instance, if you are living in a Canadian border city and commuting to your job in the United States, you might still be considered a Canadian tax resident due to your presence in Canada. In such a situation, you would have foreign-source income, which requires careful handling to ensure compliance with both Canadian and U.S. tax laws.

Four Scenarios for US Tax Revenue

The actual issue arises when you are a Canadian tax resident and you are earning income from a U.S. employer. In these cases, there are several scenarios to consider:

US Citizen: If you are a U.S. citizen, you are subject to worldwide taxation in the U.S., making the IRS and CRA’s involvement relevant to your tax affairs. Resident Alien: If you are a resident alien (green card holder or long-term resident), you are also subject to worldwide taxation in the U.S. Substantial Presence Test: If you meet the Substantial Presence Test, you are subject to U.S. tax on all your worldwide income. This test is based on the number of days you spend in the U.S. US Tax Liability: If you are not a citizen or resident alien but still have U.S. source income and a U.S. tax liability, the same principles apply.

Immediate Professional Advice

No matter which of these scenarios applies to your situation, it is in your best interest to seek professional accounting advice immediately. This can help minimize the total tax you pay to both countries. Waiting for the IRS to report you to CRA or for your situation to be uncovered could limit your planning options and introduce the unnecessary risk of Canadian tax evasion charges.

Conclusion

Understanding your tax residency status and the potential implications for both the IRS and CRA is crucial when you are earning income in the U.S. as a Canadian. By staying informed and getting professional advice, you can navigate these complex tax rules to ensure compliance and minimize your tax burden.