Taxation and Travel over the border for work.

By Ryan Percy

Canadians are bringing home more money from working abroad with the exchange rate sitting in the United State’s favour but many are unsure how their taxes are affected.

Individuals who work in the United States and live in Canada, or vice versa, should know about the Convention Between Canada and the United States of America with Respect to Taxes on Income and on Capital. Specifically, Article XXV lays down the rules for non-discrimination for citizens of the United States or Canada that work as non-residents. What it means is one cannot be discriminated against, for tax purposes, for being a non-resident.

Saiful Bhuiyan, 55, is director of SB Accounting and Tax Services primarily focused on helping with income tax preparation for non-resident workers in Canada and the United States. Bhuiyan said there are a number of factors that can adjust how much someone owes on either side of the border such as 401k contribution in the working country, something that wasn’t recognized until 2012.

“A lot of the time for a single person the Canadian and US taxes are similar,” Bhuiyan said. “But for a married person the US gives better benefits than in Canada. In that case they may owe more taxes in Canada.”

Conversation rate plays a large part in how advantageous it is to work in another country. The exchange rate dropped roughly two per cent from 2016 to 2017, a slump compared to the 3.6 per cent increase in 2016 or 15.8 per cent increase in 2015 before.

Sherry Labute, 53, has spent 30 years working in the US as an actuarial. Labute said when it comes to working on the other side of the border having the exchange rate higher is better, even if it means paying more Canadian taxes.

“In a normal situation you get a raise, you make more money every year, the cost of goods are going up et cetera,” said Labute. “You know you’re getting extra but if it really cuts down you’re paying your bills and all of a sudden you have 70 per cent of what you’re used to working with.”

When someone makes money in the US they pay tax as if they were a resident of the US. Afterwards, the amount paid is then used as a non-refundable tax credit on their Canadian income tax. If someone makes US$100,000 in Michigan they will pay roughly US$27,000 in US income tax. After conversion to CDN$130,000 their Canadian income tax would be $41,000. The tax credit is converted to $36,000 meaning the person still owes $5,000 in taxes.

While the tax system across borders might seem daunting to some, the drive to make more on the exchange rate continues to see people journeying between nations to make more money.