Participation by non-resident aliens

[Guest DonnaD]

A U.S. company has employees who are Canadian citizens who work in Canada. I am told they are paid in American dollars, which they then take to their bank and convert to Canadian currency. I believe they have no "income from U.S. sources", and are therefore excluded from coverage testing, etc. But, would they be allowed to participate in a U.S. qualified plan if the Employer wants (or more specifically, if the Employer's broker wants them to participate in order to benefit from larger investment commissions)? If it is permitted to exclude them, is it also permitted to include them? I have searched and haven't found anything that addresses this.

[david rigby]

...Canadian citizens who work in Canada....are paid in American dollars, which they then take to their bank and convert to Canadian currency.

Maybe I don't get out much, but this seems a bit flaky (possibly not a technical term).

If this is really happening, is tax being withheld? paid to what government? in what currency? which tax (fed, state/province, FICA) is being withheld?

[mbozek]

While the plan can cover Canadian employees, the benefits will be paid in US dollars and they would be subject to US taxation if no exemption applies under US-Canada tax treaty because retirement plan benefits are US source income. See IRS publications for list of tax treaties. Paying benefits in US dollars to Canadian citizens who work in Canada will probably violate Canadian Labor and currency laws. I would also check out the payment of wages to Canadian citizens in US dollars. It would be more efficient to make contributions to a Canadian Registered reftirement plan or a non qualified plan solely for foreign nationals with no us source income than spend money on lawyers to review the above issues.