Construction & contracting: relief you're probably missing — value-priced, fixed fee

Construction has its own permanent-establishment provision keyed to project duration, and subcontracting arrangements are aggregated in ways that surprise groups who thought each contract stood alone. An ordinary preparer applies the general rule and stops there, which is how the relief in the specific provision goes unclaimed.

That is how most of these engagements run. They keep the domestic file, we take the cross-border piece, and the boundary is agreed in writing so nothing is done twice or missed.

There are two routes and they are not interchangeable. If the profit was genuinely taxable in the project country, because the site ran past the treaty duration, your home country normally relieves the double charge by crediting that foreign tax against its own charge on the same profit, limited to what it would itself have charged. If the profit was never taxable there, the answer is not a credit at all but a refund from the country that took the money. Claiming a credit for tax that should never have been paid is the common error: it buries the overpayment and quietly caps your relief at the wrong figure. Settle which country had the taxing right first.

Yes, and it is the largest relief in this area. A building site that does not continue beyond the duration in the applicable treaty is not a permanent establishment, so the business profits from it are generally taxable at home only. The relief is not automatic. It is a treaty position, and it usually has to be claimed — often with a residency certificate, sometimes on a return filed in the project country for the sole purpose of disclosing that nothing is due there. Groups that file nothing at all on the basis that nothing is owed can find the position challenged years later, when the site records that would have proved the duration have long been destroyed.

Sometimes, under the employment article of the relevant treaty, and the conditions are cumulative: all of them must hold, and failing any one loses the whole exemption. They generally concern how long the employee was present, who the real employer is, and who bears the cost of that employment. The last is the one that catches contractors. Once a site becomes a permanent establishment and the employment cost is recharged to it, the exemption falls away for everyone whose cost travelled that way, including people who were only there briefly. So the employee's answer depends on the company's answer, which is why the two should not sit with different advisers on different timetables.

Often, but rarely by doing nothing. Several countries require the payer to withhold from payments to a foreign contractor as a collection mechanism rather than as a final tax. Where the treaty gives the project country no right to tax your profits, or where the amount withheld exceeds the tax actually due on the attributable profit, the excess is recovered by filing in that country and setting it against the assessed liability or claiming it back. That filing is the step groups skip, because the money has already gone and the invoice was settled net. Two things make the claim work: certificates from the client evidencing what was withheld, obtained while the relationship is warm, and a residency certificate from your own authority.

Not necessarily. Where two countries have each taxed the same profit and neither will give way, treaties provide a mutual agreement procedure: you put the case to your own competent authority and the two administrations deal with each other. It is slow, and it carries a time limit that runs from the notification of the tax that caused the problem, so the real risk is not that the route is shut but that it is left until it is. Domestic routes usually run alongside it — an amended return, an objection, a credit claim reopened — each with its own deadline. Establish the dates first, protect every position still open, then choose the route.

Yes, and this is where a properly prepared attribution earns its fee. A permanent establishment is taxed on the profit attributable to it, which means its revenue less the expenses incurred for its purposes, including a share of head-office management and support wherever those costs were physically borne. What is not accepted is a round percentage applied because it looked reasonable. The allocation has to rest on something real and checkable: headcount, hours booked to the project, plant actually used, a basis documented once and applied consistently across projects. Groups filing with no head-office allocation overpay quietly. Groups filing with an unexplained one invite the enquiry they were trying to avoid.

None of it is tax-free for being foreign. A Canadian resident is taxed on worldwide income, so foreign salary, interest, dividends, rent and gains all go on the return, converted to Canadian dollars. What genuinely reduces the bill is the basic personal amount, the credit for foreign tax already paid, and any treaty article that exempts a specific type of income. The reporting thresholds people have in mind — the foreign property statement, for one — govern reporting, not exemption. See the foreign tax credit.

Both countries have routes back, and using one before they contact you is what preserves the relief. On the US side there are procedures aimed at taxpayers whose failure was not wilful, including one designed for people living outside the country, and separate procedures for late account reports and information returns alone. Canada has its voluntary disclosures programme and taxpayer relief for penalties and interest. Filing quietly and hoping is the one approach with no protection attached to it. See catch-up filing.