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Working from anywhere: Tax implications and other watch outs

In response to the COVID-19 pandemic, employers have embraced an environment where employees work from home. With the opportunity to work from home, some Canadians are taking the opportunity to work from anywhere. For some that means working from the cottage or working from a foreign location. Before you switch from working from home to a location of your choice, there are a few things that you should consider.

Understand what your employer expects, and the various tax and workplace laws they are subject to

First, employers may restrict an employee’s ability to work from anywhere for a number of reasons:

  • Employees could face significant quarantine restrictions upon returning to Canada leaving them unable to return to work on short notice.
  • The location of the employee’s work could have an impact on whether the employer has a permanent establishment in another jurisdiction which could require the employer to pay taxes there.  A corporation will be required to pay tax in the jurisdiction where they have a permanent establishment which focuses on where the corporation has a fixed place of business or where an employee has the general authority to enter contracts on behalf of the employer.  An employee who is working abroad with the ability to sign contracts on behalf of the employer could result in the employer being subject to foreign taxes there.
  • The employer will also need to consider whether the location of the employee’s home office affects the employer’s obligation to withhold source deductions and remit these to the foreign government.  The requirement to deduct and remit payroll taxes varies by jurisdiction and considers where the employee reports to work, where the employer has a permanent establishment and from which office the employee is paid if they are never physically present in an employer’s establishment during the year.
  • Where the employee works could affect what workplace health and safety laws apply, which employment standards laws apply, whether the employee has the right license to perform the work and whether the employment benefits provide coverage for the employee.

Personal tax implications of working in another province or abroad

Canadian residents are subject to tax in the province where they reside on December 31st.   To determine residency, the Canada Revenue Agency (CRA) considers the availability of a dwelling place, the location of the taxpayer’s spouse and dependants as the most significant residential ties.  Also considered are secondary ties such as where you have health coverage, a driver’s license, where you bank and where you have club memberships.  

If you establish residential ties in another province where the tax rates are higher, you may find that not enough tax was withheld from your pay resulting in an unexpected tax bill at the end of the year.

Spending time abroad could mean you are considered a resident for tax purposes in that other country.  If the country where you are spending time has a tax treaty with Canada, double tax can generally be avoided.  The country where the income is sourced collects tax first and the higher tax rate between the two countries would prevail.  A Canadian employee who spends  more than 122 days in the U.S. for three consecutive years or 183 days in the U.S. in a given year, may find that they have to report their world-wide income on a U.S. tax return and file complex information returns to report their non-U.S. investments.  When spending a lot of time abroad, it is important to determine how the country taxes its residents and who is considered resident there.

It is not possible to temporarily work in another jurisdiction and avoid paying Canadian income tax.  If you permanently sever your ties with Canada but still receive remuneration from a Canadian resident employer, you could still be subject to tax in Canada or you may have to rely on a tax treaty between Canada and the country where you now live to avoid Canadian tax.   

Permit or visa requirements while working abroad

To be able to carry out remote work outside of Canada, you may need a permit or a visa that allows you to do so.  Before leaving Canada, determine what type of permit or visa is required and the rights and limitations that come with such a permit or visa  The immigration rules vary by country and without the proper documents, you may not be able to secure accommodations, travel in and out of the country, bring family members with you or open up bank accounts. It is important to secure the correct documentation prior to traveling abroad.

Health care and benefits coverage

Before relocating, find out whether your existing health care coverage will cover expenses incurred while abroad.  Coverage abroad may not be sufficient, and you may have to purchase additional coverage or specific coverage for the country where you are spending time.

With the increased freedom to choose where you work, remember to compare the advantages and disadvantages of working from various locations.  While a new locale might positively impact your productivity, you might also encounter unanticipated difficulties that make work less enjoyable. If you do decide to work abroad, it is also important to seek the advice of an accountant and financial planner as the choices you make could have an impact on your financial plan. Speak to your IG Consultant if you are considering working abroad and have additional questions.

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