- 6 -
taxes. Therefore, under section 1401(c), the United States may
not tax self-employment income to the extent that Canada has the
right to tax such income under the totalization agreement. See
id. art. II(1)(a)(ii).
Under article V of the totalization agreement, an employed
person working in either the United States or Canada is subject
to the employment taxes of only the country in which the person
works. By contrast, if a person is self-employed and would
otherwise be subject to self-employment taxes in both countries,
the person is subject to the self-employment taxes of only the
United States unless the person is a resident of Canada. If a
person would be subject to employment taxes of both countries
because he is considered by the United States to be self-employed
and by Canada to be an employee, the tie-breaker rule is that the
person will be treated as self-employed.
Mr. Rusten falls within this tie-breaker rule. The Internal
Revenue Service has the exclusive right to tax him as a self-
employed person residing in the United States, but without the
tie-breaker rule the Canada Revenue Agency would have the right
to tax him as an employee working in Canada. Unfortunately, the
Canada Revenue Agency did not apply the tie-breaker rule, and any
attempts that Mr. Rusten made to recover the Canadian taxes that
CLN withheld from him were unsuccessful. Section 1401(c) offers
no protection to Mr. Rusten because since Canada did not have the
Page: Previous 1 2 3 4 5 6 7 8 9 10 Next
Last modified: March 27, 2008