Tax obligations: employed in US working remotely in Canada

[mayple]

Hi,

Given the pandemic situation, I'm planning to work remotely from Canada for my US employer (on US payroll) i.e. I'll be physically present and working from home in Canada until its time to go back to the office. This is likely to last longer than 183 days. In this situation, what are the tax obligations for the US employer, and me?

1. Do I need to let the US employer know that my remote location is not the state where I'm living and working in the US, and instead will be my home in Canada?

2. Does the US company need to withhold Canadian taxes ? I read somewhere online that CRA expects tax remittances from US/Foreign employers/companies. But I'm not sure how that is possible.

3. Do I become a Canadian tax resident if I exceed 183 days of physical presence?

4. Is T4 (I believe the equivalent of W2) required (must have) in order to file a Canadian tax return, especially in case of those employed by a US employer (on US payroll) but living and/or working remotely in Canada (i.e. physically in Canada whilst performing the work for a foreign employer)

5. In case the answer to the first 2 questions is NO, then do I simply file Canadian taxes at the end of the year as well as US taxes and thats it ? Is there a sequence to filing taxes? (i.e. US taxes before Canadian or vice-versa).

6. How are those who commute daily (pre-pandemic) to the US dealing with this tax situation (assuming they are all working from home in Canada) ?

In another thread I had read posts from those who are/were daily commuters to the US, and it seemed pretty straightforward from how they described it (file taxes in the US, and then file in Canada and claim treaty based exemptions/deductions/credits), but I'm not sure how things change right now with no daily (or frequent) travel to the US, and performing work while physically present in Canada.

Also, any recommendations for a good cross-border tax agent with reasonable charges?
Thanks

 

[scylla]

Hi,

Given the pandemic situation, I'm planning to work remotely from Canada for my US employer (on US payroll) i.e. I'll be physically present and working from home in Canada until its time to go back to the office. This is likely to last longer than 183 days. In this situation, what are the tax obligations for the US employer, and me?

1. Do I need to let the US employer know that my remote location is not the state where I'm living and working in the US, and instead will be my home in Canada?

2. Does the US company need to withhold Canadian taxes ? I read somewhere online that CRA expects tax remittances from US/Foreign employers/companies. But I'm not sure how that is possible.

3. Do I become a Canadian tax resident if I exceed 183 days of physical presence?

4. Is T4 (I believe the equivalent of W2) required (must have) in order to file a Canadian tax return, especially in case of those employed by a US employer (on US payroll) but living and/or working remotely in Canada (i.e. physically in Canada whilst performing the work for a foreign employer)

5. In case the answer to the first 2 questions is NO, then do I simply file Canadian taxes at the end of the year as well as US taxes and thats it ? Is there a sequence to filing taxes? (i.e. US taxes before Canadian or vice-versa).

6. How are those who commute daily (pre-pandemic) to the US dealing with this tax situation (assuming they are all working from home in Canada) ?

In another thread I had read posts from those who are/were daily commuters to the US, and it seemed pretty straightforward from how they described it (file taxes in the US, and then file in Canada and claim treaty based exemptions/deductions/credits), but I'm not sure how things change right now with no daily (or frequent) travel to the US, and performing work while physically present in Canada.

Also, any recommendations for a good cross-border tax agent with reasonable charges?
Thanks

You absolutely need to let your employer know. You may be violating the terms of your employment if you don't or if you work outside of the US without approval. Tell them in advance of moving to Canada. Don't wait for them to find out.

I would recommend that you post the rest of your questions to this section of the forum and also read through the discussions there:

https://www.canadavisa.com/canada-immigration-discussion-board/forums/h-1b-holders-in-the-u-s.59/

Good luck.

 

[mayple]

You absolutely need to let your employer know. You may be violating the terms of your employment if you don't or if you work outside of the US without approval. Tell them in advance of moving to Canada. Don't wait for them to find out.

I would recommend that you post the rest of your questions to this section of the forum and also read through the discussions there:

https://www.canadavisa.com/canada-immigration-discussion-board/forums/h-1b-holders-in-the-u-s.59/

Good luck.

These questions are tax related, not immigration related. Why would these be posted elsewhere?

 

[scylla]

These questions are tax related, not immigration related. Why would these be posted elsewhere?

You might very well get answers here. However there are also a ton of tax related discussions specific to working for US employers in Canada in the section of the forum that I provided a link to above.

Just trying to be helpful... You are of course free to ignore.

 

[mayple]

You might very well get answers here. However there are also a ton of tax related discussions specific to working for US employers in Canada in the section of the forum that I provided a link to above.

Just trying to be helpful... You are of course free to ignore.

Okay Thanks, i'll make another post too

 

[canuck78]

Ontario healthcare will no cover prescriptions, dental care, vision care, physiotherapy, etc. so you'll have take that into account If you have a spouse or living in you will be a tax resident without spending time in Canada.

 

[mayple]

Ontario healthcare will no cover prescriptions, dental care, vision care, physiotherapy, etc. so you'll have take that into account If you have a spouse or living in you will be a tax resident without spending time in Canada.

??

 

[canuck78]

??

Sorry missed a period.

3. You can spend zero days in Canada yet still be a tax resident if your spouse and dependent children live in Canada. It is not only about 183 days.

Many are unaware that Canada/Ontario has partial medicare. If you have any health issues that require expensive medication, need orthodontic work, extensive dental, etc. you need to realize you will likely be paying cash for these things.

 

[mayple]

Sorry missed a period.

3. You can spend zero days in Canada yet still be a tax resident if your spouse and dependent children live in Canada. It is not only about 183 days.

Many are unaware that Canada/Ontario has partial medicare. If you have any health issues that require expensive medication, need orthodontic work, extensive dental, etc. you need to realize you will likely be paying cash for these things.

Yes, having residential ties (which may include having a house, property/car, spouse) may/can be considered as being a resident. But I've specifically asked about the 183 days period assuming nothing else applies.

 

[mayple]

As an update, I read through the CRA website link here. Its still not entirely clear on certain aspects, but one thing is fairly certain that US employers ARE required to withhold Canadian taxes and remit them to CRA unless they get a waiver (I don't know more about the process and what it entails). I'm sharing some highlights below. Note - the highlighted text in italics is directly from the CRA website, while colored font (in red) is my interpretation.

Canadian income tax rules require that amounts must be deducted or withheld and remitted in respect for:

• payments to non-residents for services rendered in Canada , other than those paid in respect of an office or employment (regulation 105)
• remuneration paid to a non-resident officer or employee in respect of an office, or employment services, provided in Canada (regulation 102)

The below text appears to be related to Canadian residents (for tax purposes) who work in the US a.ka. the commuters:
Potential Issue
A non-resident entity may employ Canadian residents to work outside of Canada. As a result of the travel restrictions, the only way for some of these Canadian resident employees to fulfil their duties might be by performing them in Canada on an exceptional and temporary basis. Will the performance of employment duties from Canada affect the withholding obligations of the non-resident entity?

Agency Position
If a Canadian resident employee of a non-resident entity is forced to perform their employment duties in Canada on an exceptional and temporary basis as a result of the travel restrictions, and that employee has been issued a letter of authority applicable to the tax year including that period, the letter of authority will continue to apply and the withholding obligations of the non-resident entity will not change in Canada, as long as there are no changes to the withholding obligations of the non-resident entity in the other jurisdiction.

The below text appears to be related to Canadian non-residents (for tax purposes) who typically/mostly work in the US a.ka. the non-commuters. Take note of the text in green for the applicable dates for this CRA position:

1. Non-resident employer withholdings with non-resident employee in Canada
   The situation may arise where, due to the COVID-19 crisis, a non-resident employee of a non-resident employer travelled to Canada for personal reasons and, as a result of the travel restrictions, was unable to return to their country of residence when intended. Although it may not have been their intention, if the non-resident employee performs their duties of employment remotely while in Canada, and continues to receive remuneration for those duties, the non-resident employer would be subject to Canadian withholding, remitting, and reporting obligations, notwithstanding that the non-resident employee may ultimately be exempt from tax in Canada due to a tax treaty.
   For the non-resident employer to be relieved of their obligation to withhold and remit the applicable taxes, the non-resident employee would have to apply for and receive a waiver of the tax required to be deducted. Alternatively, the non-resident employer could apply for certification as a qualifying non-resident employer, and if the non-resident employee also qualifies, the non-resident employer would not have to withhold and remit tax on the payments they make to the non-resident employee. Both these remedies apply only where the non-resident employee is working in Canada for a limited time and is exempt from tax in Canada under a tax treaty. However, these remedies are only available in respect of a payment if granted prior to the date that the payment was made.
   In light of the extraordinary circumstances caused by the COVID-19 crisis, it is plausible that a non-resident employee who customarily performed their duties of employment for the non-resident employer in their jurisdiction of residence travelled to Canada unexpectedly, in haste, or under personal distress, and commenced performing their duties of employment remotely while remaining in Canada due to the travel restrictions. The non-resident employer and the non-resident employee may not have had the time or knowledge necessary to obtain the available relief from Canadian withholdings, at that time.
   Potential Issue
   The non-resident employee would be subject to both Canadian payroll withholdings, and those of their jurisdiction of residence, and the resulting reduction in net pay could cause undue hardship.
   Additionally, the non-resident employer, failing to withhold and remit the required Canadian amounts without authorization from the Agency, could be held liable for the whole amount with interest and penalties.
   Agency Position
   Note: The ending date referenced above for the application period of the guidance on this page, September 30, 2020, is not applicable to subsection III. D. Non-resident employer withholdings with non-resident employee in Canada. The ending date for this subsection is detailed below.
   As an administrative matter and in light of these extraordinary circumstances, the Agency will not assess or penalize a non-resident employer for failing to withhold the required Canadian payroll deductions, in respect of remuneration paid to a non-resident employee performing duties of employment remotely in Canada, where the non-resident employer and the non-resident employee, as may be required, can reasonably demonstrate that:
   • the non-resident employee is resident in a country with which Canada has a comprehensive tax treaty (treaty);
   • the non-resident employee is not resident in Canada for tax purposes in accordance with the relevant treaty;
   • the remuneration received by the non-resident employee for performing their duties of employment in Canada would otherwise be exempt from taxation in Canada in accordance with the relevant treaty;
   • the non-resident employee regularly and customarily performs their duties of employment outside of Canada and has not previously performed duties of employment in Canada, as a non-resident of Canada, for any employer;
   • there is no employer-employee relationship between the non-resident employee and any employer in Canada;
   • there has been no significant change to: the non-resident employee’s duties of employment (other than working remotely) while working in Canada; or the employer-employee relationship that existed between the non-resident employer and the non-resident employee at the time the non-resident employee travelled to Canada; and
   • the non-resident employee travelled to Canada due to the COVID-19 crisis or for reasons not relating in any manner whatever to their employment, and could not return to their jurisdiction of residence solely due to COVID-19 travel restrictions.

The Agency will respect this position for the period beginning on the day the non-resident employee commenced exercising their duties of employment in Canada because they were unable to return to their jurisdiction of residence due to the COVID 19 travel restrictions, and ending on the date that is the earliest of:

• the day the non-resident employee returned or was able to return to their jurisdiction of residence;
• the day specified on a Regulation 102 waiver relieving the non-resident employee from the relevant Canadian withholdings;
• the day the non-resident employer was certified by the Minister as a qualifying non-resident employer and the non-resident employee was also a qualifying non-resident employee, or
• December 31, 2020.

Non-resident employees providing employment services in Canada are subject to the same withholding, remitting, and reporting obligations as Canadian resident employees. Therefore, any employer, including a non-resident employer, has to withhold amounts on account of the income tax liability of an employee in Canada, even if the employee is likely to be exempt from tax in Canada because of a tax treaty. For the employer to be relieved of their obligation to withhold, the employee would have to apply for, and get, an income tax waiver from the CRA [as discussed in IV. Waiver requests – Payments to non-residents for services provided in Canada above].


From the above, it appears to be the case that both in case of the commuters who have to work from Canada due to cross-border restrictions AND those who aren't commuters but are choosing to work from Canadian home, the US employer is required to withhold Canadian taxes and remit them to CRA (in addition to employees filing Canadian tax returns as applicable), unless the US employer (and perhaps the employee as well) can get a waiver.

Thoughts?

 

[canuck78]

As an update, I read through the CRA website link here. Its still not entirely clear on certain aspects, but one thing is fairly certain that US employers ARE required to withhold Canadian taxes and remit them to CRA unless they get a waiver (I don't know more about the process and what it entails). I'm sharing some highlights below. Note - the highlighted text in italics is directly from the CRA website, while colored font (in red) is my interpretation.

Canadian income tax rules require that amounts must be deducted or withheld and remitted in respect for:

• payments to non-residents for services rendered in Canada , other than those paid in respect of an office or employment (regulation 105)
• remuneration paid to a non-resident officer or employee in respect of an office, or employment services, provided in Canada (regulation 102)

The below text appears to be related to Canadian residents (for tax purposes) who work in the US a.ka. the commuters:
Potential Issue
A non-resident entity may employ Canadian residents to work outside of Canada. As a result of the travel restrictions, the only way for some of these Canadian resident employees to fulfil their duties might be by performing them in Canada on an exceptional and temporary basis. Will the performance of employment duties from Canada affect the withholding obligations of the non-resident entity?

Agency Position
If a Canadian resident employee of a non-resident entity is forced to perform their employment duties in Canada on an exceptional and temporary basis as a result of the travel restrictions, and that employee has been issued a letter of authority applicable to the tax year including that period, the letter of authority will continue to apply and the withholding obligations of the non-resident entity will not change in Canada, as long as there are no changes to the withholding obligations of the non-resident entity in the other jurisdiction.

The below text appears to be related to Canadian non-residents (for tax purposes) who typically/mostly work in the US a.ka. the non-commuters. Take note of the text in green for the applicable dates for this CRA position:

1. Non-resident employer withholdings with non-resident employee in Canada
   The situation may arise where, due to the COVID-19 crisis, a non-resident employee of a non-resident employer travelled to Canada for personal reasons and, as a result of the travel restrictions, was unable to return to their country of residence when intended. Although it may not have been their intention, if the non-resident employee performs their duties of employment remotely while in Canada, and continues to receive remuneration for those duties, the non-resident employer would be subject to Canadian withholding, remitting, and reporting obligations, notwithstanding that the non-resident employee may ultimately be exempt from tax in Canada due to a tax treaty.
   For the non-resident employer to be relieved of their obligation to withhold and remit the applicable taxes, the non-resident employee would have to apply for and receive a waiver of the tax required to be deducted. Alternatively, the non-resident employer could apply for certification as a qualifying non-resident employer, and if the non-resident employee also qualifies, the non-resident employer would not have to withhold and remit tax on the payments they make to the non-resident employee. Both these remedies apply only where the non-resident employee is working in Canada for a limited time and is exempt from tax in Canada under a tax treaty. However, these remedies are only available in respect of a payment if granted prior to the date that the payment was made.
   In light of the extraordinary circumstances caused by the COVID-19 crisis, it is plausible that a non-resident employee who customarily performed their duties of employment for the non-resident employer in their jurisdiction of residence travelled to Canada unexpectedly, in haste, or under personal distress, and commenced performing their duties of employment remotely while remaining in Canada due to the travel restrictions. The non-resident employer and the non-resident employee may not have had the time or knowledge necessary to obtain the available relief from Canadian withholdings, at that time.
   Potential Issue
   The non-resident employee would be subject to both Canadian payroll withholdings, and those of their jurisdiction of residence, and the resulting reduction in net pay could cause undue hardship.
   Additionally, the non-resident employer, failing to withhold and remit the required Canadian amounts without authorization from the Agency, could be held liable for the whole amount with interest and penalties.
   Agency Position
   Note: The ending date referenced above for the application period of the guidance on this page, September 30, 2020, is not applicable to subsection III. D. Non-resident employer withholdings with non-resident employee in Canada. The ending date for this subsection is detailed below.
   As an administrative matter and in light of these extraordinary circumstances, the Agency will not assess or penalize a non-resident employer for failing to withhold the required Canadian payroll deductions, in respect of remuneration paid to a non-resident employee performing duties of employment remotely in Canada, where the non-resident employer and the non-resident employee, as may be required, can reasonably demonstrate that:
   • the non-resident employee is resident in a country with which Canada has a comprehensive tax treaty (treaty);
   • the non-resident employee is not resident in Canada for tax purposes in accordance with the relevant treaty;
   • the remuneration received by the non-resident employee for performing their duties of employment in Canada would otherwise be exempt from taxation in Canada in accordance with the relevant treaty;
   • the non-resident employee regularly and customarily performs their duties of employment outside of Canada and has not previously performed duties of employment in Canada, as a non-resident of Canada, for any employer;
   • there is no employer-employee relationship between the non-resident employee and any employer in Canada;
   • there has been no significant change to: the non-resident employee’s duties of employment (other than working remotely) while working in Canada; or the employer-employee relationship that existed between the non-resident employer and the non-resident employee at the time the non-resident employee travelled to Canada; and
   • the non-resident employee travelled to Canada due to the COVID-19 crisis or for reasons not relating in any manner whatever to their employment, and could not return to their jurisdiction of residence solely due to COVID-19 travel restrictions.

The Agency will respect this position for the period beginning on the day the non-resident employee commenced exercising their duties of employment in Canada because they were unable to return to their jurisdiction of residence due to the COVID 19 travel restrictions, and ending on the date that is the earliest of:

• the day the non-resident employee returned or was able to return to their jurisdiction of residence;
• the day specified on a Regulation 102 waiver relieving the non-resident employee from the relevant Canadian withholdings;
• the day the non-resident employer was certified by the Minister as a qualifying non-resident employer and the non-resident employee was also a qualifying non-resident employee, or
• December 31, 2020.

Non-resident employees providing employment services in Canada are subject to the same withholding, remitting, and reporting obligations as Canadian resident employees. Therefore, any employer, including a non-resident employer, has to withhold amounts on account of the income tax liability of an employee in Canada, even if the employee is likely to be exempt from tax in Canada because of a tax treaty. For the employer to be relieved of their obligation to withhold, the employee would have to apply for, and get, an income tax waiver from the CRA [as discussed in IV. Waiver requests – Payments to non-residents for services provided in Canada above].


From the above, it appears to be the case that both in case of the commuters who have to work from Canada due to cross-border restrictions AND those who aren't commuters but are choosing to work from Canadian home, the US employer is required to withhold Canadian taxes and remit them to CRA (in addition to employees filing Canadian tax returns as applicable), unless the US employer (and perhaps the employee as well) can get a waiver.

Thoughts?

You are not having to work in Canada due to travel restrictions.

 

[ivand]

Hi,

Given the pandemic situation, I'm planning to work remotely from Canada for my US employer (on US payroll) i.e. I'll be physically present and working from home in Canada until its time to go back to the office. This is likely to last longer than 183 days. In this situation, what are the tax obligations for the US employer, and me?

1. Do I need to let the US employer know that my remote location is not the state where I'm living and working in the US, and instead will be my home in Canada?

2. Does the US company need to withhold Canadian taxes ? I read somewhere online that CRA expects tax remittances from US/Foreign employers/companies. But I'm not sure how that is possible.

3. Do I become a Canadian tax resident if I exceed 183 days of physical presence?

4. Is T4 (I believe the equivalent of W2) required (must have) in order to file a Canadian tax return, especially in case of those employed by a US employer (on US payroll) but living and/or working remotely in Canada (i.e. physically in Canada whilst performing the work for a foreign employer)

5. In case the answer to the first 2 questions is NO, then do I simply file Canadian taxes at the end of the year as well as US taxes and thats it ? Is there a sequence to filing taxes? (i.e. US taxes before Canadian or vice-versa).

6. How are those who commute daily (pre-pandemic) to the US dealing with this tax situation (assuming they are all working from home in Canada) ?

In another thread I had read posts from those who are/were daily commuters to the US, and it seemed pretty straightforward from how they described it (file taxes in the US, and then file in Canada and claim treaty based exemptions/deductions/credits), but I'm not sure how things change right now with no daily (or frequent) travel to the US, and performing work while physically present in Canada.

Also, any recommendations for a good cross-border tax agent with reasonable charges?
Thanks

Yes, 100% you need to let your employer know and get their permission.
You need to file taxes in BOTH US and Canada.
US taxes are done first, and then you use the US return to file Canadian return (and pay a little bit more taxes to Canada).
Commuting daily is fine, but if you sleep in Canada, you are still resident of Canada and must file taxes in Canada.

Now, hire an accountant, preferably one who can do BOTH taxes at the same time. To do US taxes by yourself, unlike Canadian taxes, is a nightmarish experience, and penalties are way worse that paying $1000 to hire a good accountant.