Just 15 more days till tax day...in Canada

My family and I spent most of 2009 as expatriates in New Brunswick, Canada, but today, alas, I bring no bawdy tales of being screeched in as an honorary Newfoundlander, or of seeing mooses in Cape Breton, or of watching whales blow in the Bay of Fundy, or learning how to curl (which is far more difficult than it looks).

No, comrades, the topic du jour is an international freelancer's view of the differences in our income tax systems, which for some reason is on top of my mind today.

• I can't speak for anyone else, but at our income level, a Canadian pays more than a comparable U.S. citizen. A lot more. Keep in mind, this is on top of an already-nasty federal/provincial sales tax (13% in N.B.) and, worst of all, wicked tariffs on liquor. Oddly enough, easy access to unemployment benefits (known shorthand as "EI," for Employment Insurance) and healthcare are not free. They are expensive.
• Although we paid into the healthcare and EI systems, we were not eligible for benefits. We were covered by a Cigna International policy.
• That being said, I admire how simple the Canadian T1 General Income Tax and Benefit Return is. Ours was 19 pages long, and it covered both federal and provincial taxes.  
• By comparison, our fed and Arizona forms ran 47 and 16 pages, respectively. And to add insult to injury, the postage to mail our 1040 cost almost a dollar more than the T1!
• The T1 is also admirably clear about what your tax rate calculation is, compared to the byzantine B.S. charts in the U.S. system. The Canadian government appears quite content to spell out how badly you're getting reamed.

On a final note, for U.S. citizen freelancers who find themselves outposted north of the border: Make sure you're an LLC. As it turns out, freelancing in Canada went very smoothly and my fears from last May of owing taxes to the Dominion on my worldwide income were unfounded. Our tax preparer concluded that "Boomvang Creative does not carry on business in Canada through a permanent establishment maintained in Canada."

Uncle Sam, you're very welcome.

Stop me if you've heard this one before

So an American attorney, a Canadian tax accountant and an American CPA walk into a bar...

Well, they didn't really walk into a bar--I've been talking with them in trying to get some international tax issues sorted out. Being self-employed in another country comes with a heap of implications far beyond the usual capabilities of QuickBooks, TurboTax, voodoo and chicken blood.

Long story short, we were informed by the Canadian tax adviser that I am going to owe taxes on my "worldwide income" to Canada for the time I am here, and U.S. law provides for the Foreign Income Exclusion so I'm not in double jeopardy. (Note: All of my clients are in the U.S., but because I am doing the work while residing in Canada, they have a claim on the taxes.) So far, so good.

After arriving at the arcane intersection of immigration law and tax law, however, I concluded that there was another key step: I needed to make sure I wasn't obligated to pay into both countries' social security systems. This is precisely what the US-Canada Social Security Totalization Agreement does, and we have similar treaties with dozens of countries.

You can read the legalese in its entirety if you can't get to sleep tonight and/or want to have nightmares, but here are the steps I'm taking based on the counsel I've received:
1) Apply for a Certificate of Coverage as a self-employed individual from the U.S. gov't.
2) Present said certificate to the Canadian gov't.
3) Apply for an Individual Tax Number for Non-residents, which gives me a route to pay taxes to Canada.

"And the taxman’s shouting ’cause he wants his dough
and the wheels of finance won’t begin to slow."
--The Jam, Burning Sky