Looking for some pointers on tax handling while working for US based company (employed in USA) and living in Canada as a permanent resident, specifically for RSUs.
Are we taxed on vesting date in both USA as well as Canada ?
If we provide W8BEN to US broker, do they not withhold tax on RSU vesting?
Thanks
Sharing my experience:
So, as I understand, your brokerage withhelds tax for both US and Canada ? or only US, and then you pay Canada tax later while filing returns with CRA?
Is this for a case when you were employed with US based company? or Canadian subsidiary of US based company?
Yes, they sell portion of the stocks to cover all four taxes (fed+state).
Yes, working for Canadian subsidiary now.
Thanks @proutray. That’s what my understanding is, if you work for the Canadian subsidiary, they will withheld all 4 taxes. But if you provide W8BEN, they will only withheld Canadian taxes (since you are not a US resident anymore). Have you tried this ?
Also, if you are working for a US company remotely from Canada, Canadian tax withholding should not come into picture, you only need to pay taxes while filing returns.
As stated earlier, this is my experience; can’t advise on how tax withholding may work.
I have checked with my employer NTGR, their financial consultant Del* and the broker involved Et* to minimize withholding and get maximum tax refund. 
This is not accurate.
Any US sourced income is always taxable in America there is no exception to this.
So if your US company grants you RSUs, they will be delivered to an american brokerage account. This is US sourced income. There’s no state income tax in the picture here, only US Federal tax is in play for non residents.
Form W8-BEN tells your brokerage that you’re not an american citizen or resident and if America has a special tax treaty with your country of residence then the rate of withholding is lowered from the standard 30%. If I recall correctly the rate for Canada is 15%.
At the end of the year, you don’t need to file a US Tax return unless you want to or have to due to other income obligations. On the Canadian tax side, you can claim whatever tax was witheld in US as a foreign tax credit and you effectively end up paying taxes on the max(us taxes, Canada taxes). For Canadian tax residents this basically equates to just the Canadian taxes.
To provide you a contrasting example to make things clearer, assume that you were a resident of a country like the UAE which doesn’t have income taxes and your US based employer issued you RSUs, then even though you’re a non resident and non american citizen, you’d have to pay 30% taxes on any income that comes out of your RSUs to IRS.
Just to confirm, you are a Canadian Permanent Resident who is residing in Canada (not here temporarily for soft landing or stuck for a couple of months waiting for a US visa appointment).
And you’re employed with a US Company and are on the US payroll, not the Canadian subsidiary for the US company.
If so, then this is an extremely bad idea. It’s not illegal or anything like that. But this puts your US employer in violation of Canadian Tax law. I’d strongly urge you to talk to your HR and ERC department about this working arrangement (I’d be very surprised if they’ve signed off on this, if they have then that’s great).
The main issue with this working arrangement is that you are an employee of the company, To employ someone in Canada your employer needs to pay payroll tax and make contributions to the CPP. They’d also need to be deducting your EI from your paychecks so that you’d be eligible for EI if for whatever reason your working relationship was to end.
So if CRA was to ever look into this, and see that you’re reporting employment income and not paying into EI and CPP. They could ask your employer why they were not complying with Canadian Tax law.
The other thing to also read is your employee handbook, that generally tells you that if you work from even another US state for a prolonged period of time, you must notify the company. Because US states too have residency related tax obligations that the employer must be compliant with.
To summarize, please check with your employer as to the validity of your working agreement.
Right, these are all very valid questions that need to be figured out. That being said, it is not uncommon. I know at least 2 folks in my close circle, who do this (employed as US employee), and live in Canada (for most of the year). It does get complicated, and can be sorted out. I won’t call it a bad idea if you keep everyone informed and pay taxes. Not really sure about the requirement to pay to CPP/EI is mandated or not (as long as you pay income taxes based on residence). If you don’t pay EI, you are not covered by unemployment insurance, that’s it. CPP is different, and I agree it needs to be sorted out.
And we will see more of such cases going forward with lots of companies moving towards Remote options.
I’m not sure why you’re trying to minimize the severity of the situation. I will reiterate that it’s an extremely bad idea to do this.
Just because you know people who do this, does not mean that it is fine. I will also clarify that this is not illegal, this is not something over which your immigration status in Canada or the US will be impacted.
The entity that gets screwed over is your employer when this gets scrutinized (assuming you did this without their knowledge). The only time an employer will be a willing participant in this scheme is if they have no presence in Canada whatsoever nor do they ever plan to operate there. In that case CRA is toothless and Canadian law doesn’t really apply to the employer. But no other employer will allow for this.
Let me share a hypothetical scenario, you are employed by a US employer who you tell that you work from lets say Washington State (Keeping this simple as WA doesn’t have state income tax). In reality you work from BC. Your arrangement works great as you work remotely most of the time and go to the office a few times in the year when needed. In terms of filing your taxes each year you pay income tax in Canada and the US, get a foreign tax credit towards the Canadian federal tax and pay the entire BC income tax. A few years down the road, things turn sour and the employer decides to let you go (not that this would ever happen, but this is a hypothetical scenario so lets play along). You now go and file for unemployment benefits with BC and CRA who deny your application because there were no EI contributions made by you. Enraged you appeal this and explain that you were employed this whole time, paid your taxes and EI premiums. Now this goes to a review and they find that you were indeed employed. It is the Employers responsibility to remit CPP and withhold the EI premiums. They are found to have been in the wrong and asked to pay these with interest and a fine is levied against them for not being in compliance with the law to boot. If they have a subsidiary or presence in Canada they have no option but to comply if they have no presence whatsoever in Canada then they are outside the ambit of Canadian law.
Now put yourself in an employers shoes and ask if you’d want to be put in this position. Most employers will not want to end up here and this is the reason why businesses like PEOs exist, alternatively business will not directly employ people but will bring them on as Contractors.
You said you weren’t aware of CPP, information about contributions can be found here. Note that this is not voluntary or optional, the first statement makes it clear that this is mandatory.
Next you say -
If you don’t pay EI, you are not covered by unemployment insurance, that’s it.
I’m guessing this is your personal opinion, because this is certainly not factual correct. Paying into EI is not optional. More information is available here. Given the choice every Tom, Dick and Harry would rather take a higher take home vs contribute to EI and CPP, this is why the responsibilities of collecting these have been assigned at source to employers.
For many years I worked in the US on a L1 visa, during all those years I needed to contribute to EI even though I was ineligible to ever receive a payout from EI, because one of the conditions of getting paid from EI on job loss is that one has to be willing and able and to actively be looking for a Job. Whereas one of the stipulations of the L1 visas is that you’re only allowed to work for a particular employer and upon termination must depart the US. Similarly employees on H1-B only have a very limited time to find alternative employment, they too must however contribute to EI.
Lastly I want to reiterate, that I’m not providing advice nor judgement on your or anyone else’s working situation. Each individual is free to pursue an arrangement that works for them, but when they choose to do so it is extremely important to understand the tax implications towards yourself and to some extent towards your employer. It’s also important to keep your employer appraised whenever you move (even domestically) because taxation is a weird beast and also because your employer needs to send you important communication in regards to wage statements and medical insurance amongst other things.
I get it man, thanks for this wonderful write up.
I agree, ignorance on EI/CPP is not innocence, so it’s better to check with some experts on this , and that’s what I was doing here.
All your advise makes complete sense.
How did you contribute to EI in Canada when you worked in US on L1 visa and got salary in US???
Same situation this year. Deferred income from US job RSUs got hit with US+ California taxes + Canada + Ontario taxes. I am with the same company’s Canadian arm. Tell me something - when you filed subsequent year tax return to claw back the withheld taxes did you claw back the Canadian portion or the US portion. Theoretically my RSUs were earned in US and vested in Canada. Thank you so much in advance.
I’ve not had to deal with this situation personally, also it’s a bit odd for the California part of taxes to be withheld if you’re not a California resident. I’d double check with the broker that your company uses to manage their stock plan and ask that they update your previous W-9 with a W-8 ben indicating your updated tax residency.
As for clawing back the withheld taxes, you should be able to claw back the entirety of the US taxes on the RSUs with your Canadian return. The only thing that you will need to check with someone who understands this better than I do, is how is this income going to be represented on your Canadian tax forms (is this going to be on your T4). As long as you can represent this correctly, you’ll get a straightforward deduction for foreign taxes paid.
I am in the same boat and pay the entirety of the US+ California taxes + Canada + Ontario taxes at the maximum rate when my RSUs vest. When I checked with my employer and broker on the California portion of the taxes withheld even though I am not a US resident, I was told that it depends on where the RSUs were granted. Even though I am not a California resident, the said taxes will be withheld till that particular grant vests.
I also got a subsequent grant of RSUs last month while I am in Canada. When this vests, it will not be subject to California taxes though.
You have to work with a CPA - who files both US and Canada taxes. They can claw back the additional taxes witheld. However every year this will be the case henceforth - RSUs earned in the US and vesting in Canada will be subject to the tax witholding of both countries and you can only get it back next year while filing a return in US and Canada. Very painful.
Relief for the double taxation is available through the tax treaty between US and Canada where Canada will grant a tax credit up to the amount of US tax liability on the US earned portion of the awards.
Unfortunately the Canadian tax law does not allow for the relief at the time of payment of the awards without an approved tax credit waiver. This means that relief for double taxes can only be requested with the subsequent year of Canadian income tax return and you should receive a refund for the relief for double tax withholding at that time.
When you file your tax returns, who do you get your extra tax payment back from? I’ve paid 4 taxes (US: Federal + State, Canada: Federal + Provincial) over the RSUs. Is it Canada that pays me back the extra withheld taxes or the US?
Based on my understanding, it would be US. I’ll consult with a CPA when I file my taxes next year though.
Now I met the same situation. Wondering if we have a final conclusion here whether we should claim money back from Canada or US? It seems California doesn’t have tax treaty with Canada so I’m afraid the California state tax may not be claimed back.
When I filed my taxes last year, the US CPA confirmed that I can only claim it from Canada since I’m filing as a non-resident in US.