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Teleworking Abroad: What Are the Tax Implications for Employees

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Workplace dynamics have changed as a result of the pandemic. Numerous people have been compelled to work remotely, and some have made the decision to move. However, the need has led to some unexpected revelations. Employers will need to implement internal risk management procedures and comprehend the implications of allowing their employees to work remotely from other countries in terms of domestic and international taxation, employment and labour law, immigration, and benefit plans as remote work transitions from being a stop-gap solution to a permanent option. This topic deserves special attention because a lot of the tax and administrative assistance that governments offered during the epidemic has now run its course.

Employer payroll requirements 

Foreign employers hiring Canadian-resident remote workers

Employers from outside Canada who hire residents of Canada are subject to Canadian payroll reporting and remittance requirements. Based on the employee’s global remuneration, they must deduct Canadian federal and provincial taxes, Canada Pension Plan contributions, and Employment Insurance premiums, and they must remit these sums to the Canada Revenue Agency (CRA). Individual and summary T4 slips must be used to record the income and deductions, and they must be submitted no later than the last day of February after the calendar year. There are extra payroll remittance and reporting obligations to Revenue Quebec if the employee resides and works in Quebec. Certain foreign companies risk fines if they don’t adhere to certain payroll rules.

Employers in Canada using remote employees who are foreign residents

The same is true for Canadian companies that hire distant foreign residents who may be subject to international payroll responsibilities and business number registration requirements in the foreign employee’s country of residence.

Canadian firms, for instance, are obligated to deduct US federal and state income taxes; FICA social security; Medicare tax; and any state unemployment or disability duties from the wages of their US-based workers. Canadian employers are required to apply for an Employer Identification Number online or by sending Form SS-4 to the IRS in order to pay and report the employees’ salaries and taxes. The Canadian employer must also register a payroll account in the state where a US employee resides if that state levies income taxes.

Tax Implications of working remotely 

Remote employees in Canada pay federal, provincial, and territorial income taxes, as well as payroll deductions for Employment Insurance (EI) and the Canada Pension Plan (CPP). Working remotely does have certain special tax repercussions, though:

Office expenses when working at home 

You might be able to write off a portion of your rent, electricity, internet, and phone bills as a deduction for your home office. However, if your employer gives you a reimbursement for these costs, it is a taxable benefit that you must disclose on your tax return.

Receipts And Records

You are in charge of maintaining accurate records and itemized receipts of costs for your remote working taxes. The CRA mandates that you hold onto a copy of your return as well as all supporting paperwork, such as receipts and your T2200, for a period of six years.

T220

You and your employer will collaborate each year to finish a T2200 tax form as part of your remote working obligations. Any work-from-home allowances and claims you want to make are summarized on the T2200.

Workers organized 

Neither their title nor contract, but rather their job connection, determines how workers are categorized. Different tax and labour laws apply to employees and contractors. The improper categorization of workers, whether deliberate or not, is known as worker misclassification. Worker misclassification, when detected, necessitates the payment of back taxes and fines (perhaps for both the company and the employee) and may result in a tax and workplace audit.

Personal tax repercussions of employment abroad or in another province

Residents of Canada are liable for taxes in the province in which they were domiciled as of December 31. The presence of a home and the location of the taxpayer’s spouse and dependents are considered by the Canada Revenue Agency (CRA) to be the taxpayer’s most important residential ties for determining residence. Secondary ties, such as where you bank, hold a driver’s license, have health insurance, and belong to clubs, are also taken into account. If you decide to make your home in a province with higher tax rates, you may discover that not enough tax was deducted from your salary, leaving you with an unexpected tax bill at the end of the year.

Conclusion 

The method and timing of your tax filing might be significantly impacted by working remotely. Working remotely makes it difficult to fully understand the subtleties of worker categorization, province of employment and residency, and taxes. In this blog, we have covered the tax implications for employees working abroad. 

Employers will need to implement internal risk management procedures and comprehend the implications of allowing their employees to work remotely. Canadian firms are obligated to deduct US federal and state income taxes, FICA social security, Medicare tax, and any state unemployment or disability duties from the wages of their US-based workers. 

Foreign companies risk fines if they don’t adhere to payroll rules. Remote employees in Canada pay federal, provincial, and territorial income taxes, as well as payroll deductions for Employment Insurance (EI) and the Canada Pension Plan (CPP). Residents of Canada are liable for taxes in the province in which they were domiciled as of December 31. The presence of a home and the location of your spouse and dependents are considered to be your most important residential ties for determining residence.

Salman Rundhawa
Salman Rundhawa
Salman Rundhawa is the founder of Filing Taxes. Salman provides valuable tax planning, accounting, and income tax preparation services in Toronto, Mississauga, Oakville, and Hamilton.

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