AVOIDING DOUBLE TAXATIONS

Where do you pay taxes if you work remotely?

According to the government of Canada’s website, your income tax obligations to Canada are based on your residency status. You need to know your residency status before you can know what your tax responsibilities and filing requirements to Canada are.

Your residency status for tax purposes is determined considering 2 factors: if you physically reside in Canada for more than 183 days each year or not, AND if you have residential ties in Canada such as real estate and personal property, dependants, Canadian driver’s license, Canadian health insurance, memberships to religious or social organizations.

The CRA has a form you can fill out and based on the information you provide, they will tell you what your tax responsibilities are in Canada: https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/nr73/nr73-fill-s-17e.pdf

According to a recent poll over 60% of Canadians prefer a hybrid or remote work model, and about 75% of businesses offer their employees the choice to work from home partially or entirely. Due to this massive and rapid shift to a new approach to work, a lot of Canadians are confused about the tax implications of their remote work status, be that in another province or another country.

Calculating taxes from one province to another is straight forward: employees will be taxed based on the province they’re residents of. However if a company hires an employee who lives in another province, the employer will need to withhold tax based on the rate specified by their province, while the employee would have to pay the rate specified by their home province. In that case, the employee will either pay the difference or receive a refund when they file their taxes.

For Canadians who work abroad, their status as tax residents will have to be determined first, based on the aforementioned criteria. Some countries have so-called ‘nomad visas’ available for remote workers, and others may have tax treaties between each other that map out how their remote workers will be taxed. When none of these apply, you must look into the tax regulations of both countries carefully to avoid double taxation.

If you are working remotely and you are not sure about your tax responsibilities in your situation, the Tax Mechanic offers a free consultation to answer your related questions.

Written by: Christa Lazar