Tax Forms for Canadian Independent Contractors: Form W-8BEN
Use Form W-8BEN to claim U.S.-Canada Tax Treaty benefits
Canadian independent contractors may work for companies in the United States, and the tax treaties signed by both countries establish rules for how payments made to foreign independent contractors should be taxed.
American companies generally withhold income taxes on income paid to foreign nationals. Any U.S. firm or company will need your name, address, and tax identification numbers to facilitate payments to you and any tax withholding that might be required by the U.S. government.
This information is obtained when you complete Form W-8BEN.
The United States-Canada Income Tax Convention
The United States-Canada Income Tax Convention resulted in a treaty between the countries and signed in September 1980. After numerous tweaks and changes, the U.S. Senate advised that the treaty be ratified in June 1984.
The treaty officially went into effect in January 1985, and it prevents Canadians from having to pay the U.S. a tax on income earned here in addition to paying the Canada Revenue Agency a tax on the same money.
As a result, you can avoid having your business income taxed twice by both the U.S. and Canada if you meet the residency rules and the fixed place of business rules. Article VII of the tax treaty provides that business profits earned in the United States by Canadian residents are taxed in the U.S. only to the extent that the profits are related to a permanent establishment in the United States.
The Residency Rules
You're considered to be a resident of the country in which you have a "permanent home," so you're treated as a resident of Canada if your permanent home is there.
If you are a dual-resident taxpayer in both Canada and the United States, Article IV clarifies your residency status using a tie-breaker rule. The tie-breaker rule states that you are a resident:
- Where you have a permanent home
- If you have a permanent home both places, where you have closer personal and economic relationships, known as a center of vital interests
- If your center of vital interests cannot be determined, where you habitually live
- If you habitually live in both countries, where you are a citizen
- If you are a citizen of both or neither countries, where the United States and Canada mutually agree that you are a resident
If you are employed by a state, local, or federal government, you are generally considered to be a resident of the country where that government is located.
Locating Your Fixed Place of Business
If you are an independent contractor or business owner, you may have one or more business locations.
Working through or with U.S. companies does not establish the U.S. as your fixed place of business. Instead, your fixed place of business is a permanent establishment where your business is wholly or partly carried on, such as a:
- Place of management
- Office or branch
- Factory or workshop
- Extraction location for natural resources, such as a mine, oil or gas well, or quarry
- Building or construction site only if it lasts more than 12 months
- Drilling rig or ship only if it is used more than three months in a 12 month period
If you have two offices, one in Canada and one in the United States, you have two fixed places of business. You must treat each office differently for income tax purposes.
The location of your fixed places of business impacts where you are considered a resident and where you must pay taxes. If your fixed place of business is in Canada, you are treated as a Canadian contractor doing business with U.S. companies.
Rules for Withholding for Foreign Nationals
U.S. companies are normally required to withhold 30% of any payment of an amount subject to withholding made to a payee that is a foreign person.
Withholding is a prepayment of tax that is taken out of an employee's paycheck or a payment made to a foreign contractor subject to withholding.
The treaty prevents this withholding provided that you meet the rules, but you must submit a properly completed Form W-8BEN to the party or company that is providing you with income. The form includes a declaration that you'll include this U.S. income on your Canadian tax return.
Your Form W-8BEN will remain in effect until any information on the form becomes incorrect if you provide a U.S. tax number. It will remain in effect only until the last day of the third year after you signed it if you don't provide a number.
How to Fill Out Form W-8BEN
- Line 1: Provide your name or your business name.
- Line 3: Check "individual" or the appropriate type of business entity.
- Line 6: Enter your U.S. tax identification number, such as a Social Security number, individual taxpayer identification number, or employer identification number. Leave this line blank if you don't have one of these tax numbers.
- Line 7: Provide your Canadian Social Insurance number or your Canadian corporate tax identification number.
- Lines 9 and 10: Specify the tax treaty rules that apply to you and check the appropriate box if you are operating under a business name.
- Line 9a: Write in "Canada." Check any other boxes that apply to you.
Claiming a Refund of Your U.S. Income Tax Withholding
Should your U.S. clients withhold some of your income, you can get this money back by filing a non-resident U.S. income tax return, Form 1040-NR, along with Form 8833 to disclose your position under the U.S.-Canada Tax Treaty.
For any tax forms that you must fill out to conduct business, whether to work for a U.S. company or to reclaim U.S. tax withholding, consult a tax accountant who is experienced in non-resident tax returns.
The information contained in this article is not tax or legal advice and is not a substitute for such advice. State and federal laws change frequently, and the information in this article may not reflect your own state’s laws or the most recent changes to the law. For current tax or legal advice, please consult with an accountant or an attorney.
Internal Revenue Service. "United States - Canada Income Tax Convention." Accessed April 29, 2020.
Internal Revenue Service. "United States - Canada Income Tax Convention," Page 3-4. Accessed April 29, 2020.
Internal Revenue Service. "Publication 597: Information on the United States–Canada Income Tax Treaty," Pages 1-2. Accessed April 29, 2020.
Internal Revenue Service. "United States - Canada Income Tax Convention," Pages 9-10. Accessed April 29, 2020.
Internal Revenue Service. "United States - Canada Income Tax Convention," Pages 10-11. Accessed April 29, 2020.
Internal Revenue Service. "Instructions for the Requester of Forms W–8BEN, W–8BEN–E, W–8ECI, W–8EXP, and W–8IMY." Accessed April 29, 2020.
Internal Revenue Service. "Instructions for Form W-8BEN." Accessed April 29, 2020.
Internal Revenue Service. "Instructions for Form 1040-NR (2019): Who Must File." Accessed April 29, 2020.