# Remote work for US employer - who is responsible for tax?



## Uprightdog

I'm a Canadian citizen, living in BC, and I am about to start working (remotely) for a US company. This is full-time work, under a contract, which dictates salary, vacations etc. As I read the definition 

of employee specified by the CRA , I will be an employee, and not self-employed.

However, my contract includes the following:


> Because you are not a United States resident, you will, on paper, be treated as Contractor. You will be responsible for tax obligations as well as ancillary
> employment benefits such as health care.


Firstly, is this allowed?

And secondly, if it is allowed, how would I apply this to my next tax return?

Thanks in advance for any advice.


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## Homerhomer

If you fall under employee rules the company should set up a business number with CRA, open payroll account and remit all payroll taxes including WorkSafeBC if applicable. It is very common and happens all the time.
They should contact an accountant familiar with such situations, not a complex issue but they should get proper advice.


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## none

Homerhomer said:


> If you fall under employee rules the company should set up a business number with CRA, open payroll account and remit all payroll taxes including WorkSafeBC if applicable. It is very common and happens all the time.
> They should contact an accountant familiar with such situations, not a complex issue but they should get proper advice.


I'd take a different approach - I fall into this category under occasion - the company I work for says I am not an employee but I am a contractor, however when I called WCB to check to see if I needed insurance I was told that I couldn't buy it because technically I was an employee.

So what I chose to do was just go with it - i didn't make a stink over it and if I was injured on the job I would be forced to throw my employer under the bus on that one. I'm sure they know but are simply pretending they don't. Come tax time I pay my own CPP (not cheap, but they pay me extremely well so I don't complain).

An accountant is likely a good idea. Going to your employer and asking them to pay your CPP is pretty much asking for a raise before you've even started.


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## NorthKC

I believe this is one of those times where you should see out an accountant well versed in US/Canadian tax treaties!

I can say for sure that you will get a foreign tax credit on your Canadian tax return for any US taxes that you may pay to avoid double taxation.


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## Uprightdog

none said:


> I'd take a different approach - I fall into this category under occasion - the company I work for says I am not an employee but I am a contractor...


So, how do you handle this in your tax return, may I ask? DO you call yourself self-employed and take that route?


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## Homerhomer

Company entering a business relationship in any country should follow the rules of this country.
In this case the costs of doing it properly are absolutely minimal, simply administration costs of setting up and doing payroll remittances and most likely tax treaty return. On top of that CPP and EI which would total $3247 per employee who exceeds the max pensionable/insurable earnings.
I don't understand why they would not want to do it properly, I think the company is simply misinformed.

I only go by what OP is saying, in general the rules about employee employer relationship are farily straight forward and in most case easily to define, what the company is saying is actually not relevant, the facts are, the company actually could create a problem for itself if ever cought not remitting the payroll if it were to be established that they were required to do so.
I am not sure I understand why foreign employer should be treaded differently than local one, if that were the case than any company with head office outside of Canada and employing local workers in Canada (Caterpillar, Home Depot, City Financial just to name a few) should also be exempt from paying Canadian payroll taxes.


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## Uprightdog

Homerhomer said:


> If you fall under employee rules the company should set up a business number with CRA, open payroll account and remit all payroll taxes including WorkSafeBC if applicable. It is very common and happens all the time.


This is something I'd really rather avoid if possible. I want the job, the contracts are signed, and I'm their only non-US 'employee', so I don't think they'd be too pleased if I demand all this extra paperwork before I've even started.


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## Homerhomer

NorthKC said:


> I believe this is one of those times where you should see out an accountant well versed in US/Canadian tax treaties!
> 
> I can say for sure that you will get a foreign tax credit on your Canadian tax return for any US taxes that you may pay to avoid double taxation.


If he is selling his services to US company he shouldn't have any tax witheld, he has to fill out few forms (W8, W9 etc) and that's it, if he was working in US that's a different story.


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## Charlie

If you're treated as a contractor you'll report self employed earnings in 2013 when you file your return. The company will not have withheld any tax, so you'll be liable for it then. A big hit your first year, quarterly instalments after that. Earmark the money. Figure out what your tax liability is as you go as it will come due.

You'll be liable for both bits of the CPP. You won't pay EI (nor will you be entitled to benefits). You won't have whatever employee protections you might otherwise get regarding layoffs, notice, holiday pay, stat pay etc.

Companies sometimes do this to avoid the hassles of registering and paperwork. Sometimes they can justify it based on the nature of work, the duration of contract or other factors. Sometimes they're just offside.

The question is.....do you care?

You'll pay more or less the same tax either way. If you're deemed an employee, the exposure is theirs (unless you've been overly ambitious in deducting expenses). You do lose any EI eligibility. That can be important. You need to take care of your insurance needs (whether through self registering with WCB or otherwise). Do this before you need to make a claim.

Sometimes you're paid a bit more as a contractor to compensate. Sometimes they're just not interested in hiring an employee.


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## Uprightdog

Charlie said:


> If you're treated as a contractor you'll report self employed earnings in 2013 when you file your return. The company will not have withheld any tax, so you'll be liable for it then. A big hit your first year, quarterly instalments after that. Earmark the money. Figure out what your tax liability is as you go as it will come due.
> 
> You'll be liable for both bits of the CPP. You won't pay EI (nor will you be entitled to benefits). You won't have whatever employee protections you might otherwise get regarding layoffs, notice, holiday pay, stat pay etc.
> 
> Companies sometimes do this to avoid the hassles of registering and paperwork. Sometimes they can justify it based on the nature of work, the duration of contract or other factors. Sometimes they're just offside.
> 
> The question is.....do you care?
> 
> You'll pay more or less the same tax either way. If you're deemed an employee, the exposure is theirs (unless you've been overly ambitious in deducting expenses). You do lose any EI eligibility. That can be important. You need to take care of your insurance needs (whether through self registering with WCB or otherwise). Do this before you need to make a claim.
> 
> Sometimes you're paid a bit more as a contractor to compensate. Sometimes they're just not interested in hiring an employee.


Thanks for the comprehensive answer. I've been self-employed before, so I know the drill pretty much. Although my new employers don't have to give me any notice, they are going to pay me for stat hols, vacation days etc, which is partly why the issue is confused.

I believe I can voluntarily pay for EI, is that right? As for WCB - it's computer work from home, so is this obligatory?


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## Homerhomer

Uprightdog said:


> This is something I'd really rather avoid if possible. I want the job, the contracts are signed, and I'm their only non-US 'employee', so I don't think they'd be too pleased if I demand all this extra paperwork before I've even started.


You don't need to demand anything, you are not doing anything wrong, it may be them who do not follow rules, their problem not yours.
If worsafebc is anything like wsib then as business owner in most industries you do not need to register yourself.


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## OhGreatGuru

Uprightdog said:


> ...I've been self-employed before, so I know the drill pretty much. Although my new employers don't have to give me any notice, they are going to pay me for stat hols, vacation days etc, which is partly why the issue is confused....


I don't think you are an employee - you are a contractor with some fringe benefits. Your "employer" understandably does not want to deal with employer contributions to CPP, EI, Workers' Comp, or withholding taxes and reporting if you are their only non-resident "employee".


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## Cronos Canada

As you are the only non-US employee for this company, it's unlikely they will go out of their way to register a business in Canada just to employ you.

You may therefore want to consider the services of my Canadian based company *Cronos Payroll Services* (www . teamcronos . com).* our focus is being the legal Canadian co-employment partner for US companies wanting to hire Canadian workers in Canada*. *We effectively become the Employer of Record for you* (the Canadian worker) and then contract your services back to the US company as our client. As your legal employer in Canada, your US wages would be routed through our company where we would make all the proper income tax deductions, CPP and EI contributions to CRA, remit mandatory worker compensation premiums (i.e. WSIB, WCB, Worksafe BC, Workplace NL), and issue you an annual T4 as any Canadian employer would do. *We have been providing this service for years to US based companies who want to hire Canadians to work in Canada, but do not want to establish a legal presence here.* We also have one of the lowest rates in the industry which is paid by the US company wanting to employ you. Please email me at doug @ teamcronos. com for more details.


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## twa2w

Uprightdog said:


> I'm a Canadian citizen, living in BC, and I am about to start working (remotely) for a US company. This is full-time work, under a contract, which dictates salary, vacations etc. As I read the definition
> 
> of employee specified by the CRA , I will be an employee, and not self-employed.
> 
> However, my contract includes the following:
> 
> 
> Firstly, is this allowed?
> 
> And secondly, if it is allowed, how would I apply this to my next tax return?
> 
> Thanks in advance for any advice.


First, yes it is allowed and you are responsible for the tax. As a Canadian resident, it doesn't matter who or where your employer is, you are responsible for your income tax. 

As this firm is in the US with no presence in Canada, they will not withold tax on your behalf as a Canadian based firm would. 

CRA has no jurisdiction over this company as the company has no presence in Canada and the tax treaty does not cover this situation so you will have to present yourself to CRA as a contractor and pay the applicable income tax and CPP.
I cannot comment on EI or Workers Comp but I suspect you are not eligible for either.
If the company was in Canada or had a presence on Canada the situation would be different.
You working in Canada for this company does not give it a presence in Canada, unless you are providing goods or services in Canada.

You will have to put money aside for income tax CPP and pay when you file your income tax. You will have to convert your US $ pay to Cdn $ and report the Cdn amount. As previously noted you will then have to pay tax 1/4 ly unless your contract is very small.


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## Eclectic12

Homerhomer said:


> Company entering a business relationship in any country should follow the rules of this country ...
> I don't understand why they would not want to do it properly, I think the company is simply misinformed.


Or they have so little presence in Canada that they prefer contractors to ease the paperwork.

Since that is the approach they are taking, the OP should made sure the payment reflects the extra work the OP has to do that a run of the mill employee would do.




Homerhomer said:


> I am not sure I understand why foreign employer should be treaded differently than local one ...


Likely because there is so little in Canada that the US company owns/cares about that CRA could get $$$ from them for. 
I haven't read through all the Canada - US tax treaty but I suspect there is no clause that allows CRA to reach across the border to the US company.




Homerhomer said:


> ... if that were the case than any company with head office outside of Canada and employing local workers in Canada (Caterpillar, Home Depot, City Financial just to name a few) should also be exempt from paying Canadian payroll taxes.


At a minimum, Home Depot does not fit this category. The Home Depot Canada web site says "The Home Depot Canada is a wholly owned subsidiary of The Home Depot". With a subsidiary as well as lots of assets in Canada - there is lots for the CRA to get penalty money from.

There is a "City Financial Canada" when I google so I suspect it also has setup a subsidiary.

I am not finding much for Catepillar but I did find that Toromont Cat says "Toromont Cat is a division of Toromont Industries (TSX: TIH), a publically traded, diversified growth company incorporated in 1963".


Cheers


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## Cronos Canada

twa2w said:


> First, yes it is allowed and you are responsible for the tax. As a Canadian resident, it doesn't matter who or where your employer is, you are responsible for your income tax.
> 
> As this firm is in the US with no presence in Canada, they will not withold tax on your behalf as a Canadian based firm would.
> 
> CRA has no jurisdiction over this company as the company has no presence in Canada and the tax treaty does not cover this situation so you will have to present yourself to CRA as a contractor and pay the applicable income tax and CPP.
> I cannot comment on EI or Workers Comp but I suspect you are not eligible for either.
> If the company was in Canada or had a presence on Canada the situation would be different.
> You working in Canada for this company does not give it a presence in Canada, unless you are providing goods or services in Canada.
> 
> You will have to put money aside for income tax CPP and pay when you file your income tax. You will have to convert your US $ pay to Cdn $ and report the Cdn amount. As previously noted you will then have to pay tax 1/4 ly unless your contract is very small.


Yep, what twa2w said is entirely true. As you are essentially operating as a self-employed freelancer in Canada with a foreign client, you would be responsible for filing and paying all taxes in Canada. Also beware if you only got this one US client, as CRA can penalize you as a Personal Service Business if they believe your relationship with them is really that of an employer-employee. The only way around this and be a legitimate employee in Canada, is to utilize a Professional Employer Organization company like mine where we can legally act as the local co-employer for your American employer. You can reach me at 604-200-4817 ext 29 or doug @ teamcronos. com if you have any questions.


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## twa2w

Thanks Doug. I wasn't aware companies like yours existed. Good for the OP to be aware of and perhaps take advantage of providing costs are reasonable. Although it sounds like he has a contract set up and the company may be reluctant to change it esp if it costs them more.
Also wondering how you would handle termination and severance esp if company in US felt this was a contractor situation in their eyes and can terminate as per contract which may or may not fit local severance requirements.
Cheers


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## Cronos Canada

twa2w said:


> Thanks Doug. I wasn't aware companies like yours existed. Good for the OP to be aware of and perhaps take advantage of providing costs are reasonable. Although it sounds like he has a contract set up and the company may be reluctant to change it esp if it costs them more.
> Also wondering how you would handle termination and severance esp if company in US felt this was a contractor situation in their eyes and can terminate as per contract which may or may not fit local severance requirements.
> Cheers


Our cost are indeed very reasonable and hence why many US employers use us so that they can say they are hiring the Canadian worker as a legitimate employee following all Canadian Employment Standard laws and getting assurance that all Canadian taxes are deducted and remitted correctly. With regards to termination and severance, as well as other Canadian employee benefits such as vacation pay and statutory holidays, our US Employers have signed contractual agreements with us to make such payments as the premise of our relationship is that they can comply with all Canadian employment laws when hiring the Canadian employee.

If the American Employer is OK with hiring the Canadian Worker as a contractor (and not an employee), they don't need our service because it is 100% legal to have a cross border business to business relationship as you have pointed out where the Canadian Contractor would then be 100% responsible to pay for his own Canadian taxes. 

However, CRA doesn't like Canadian Contractors who just have one client (because in their eyes it is really an employee-employer relationship where the contractor is taking advantage of the lower business tax rates), and hence they could penalize the Canadian Contractor by deeming him/her to be a PSB (Personal Service Business) which would strip them of their right for this lower business tax rate and the ability to write-off business expenses. It's easier for CRA to do this than go after the US Employer residing outside of their jurisdiction. Due to this liability, we have many Canadian Contractors who approach us so that their existing business to business contract relationship with their US Employer can be converted into an employer-employee relationship through us. In such cases, the Canadian Contractor would be absorbing our fees (which is minimal and often offset by the excellent USD~CAD exchange fee savings that we have access to) and would agree to a lower their hourly wage to an employee wage equivalent in exchange for the employee benefits such as statutory holiday pay, vacation pay, and termination pay. We are totally transparent in calculating this lower hourly employee wage equivalent to the Canadian worker as the truth is, the difference is used to cover the employee benefits and the taxes that they would otherwise have to pay anyways as an independent contractor. Hence it's not really a lower wage per say.

As a Professional Employer Organization and license Employment Agency, we even have a special class of workers that's a hybrid between Contractor and Employee which allows the Canadian worker to write off business expenses! We essentially declare the worker's income under BOX 81 on their T4s (instead of the usual BOX 14 Employment Income), which would allow them to treat that income as line 135 "Business Income" that allows for business expense write-offs. If you are interested to learn more, please email me at doug @ teamcronos. com. We often recommend this hybrid class for contractors who want us to look after all their taxes for them, but still retain the ability to write off business expenses.


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## Eclectic12

Cronos Canada said:


> ... However, CRA doesn't like Canadian Contractors who just have one client (because in their eyes it is really an employee-employer relationship where the contractor is taking advantage of the lower business tax rates), and hence they could penalize the Canadian Contractor by deeming him/her to be a PSB (Personal Service Business) which would strip them of their right for this lower business tax rate and the ability to write-off business expenses ...


Having seen companies as well as gov'ts go the "contractor" route for long periods, with no other employer involved as well as no contractor style decisions to make ... IMO it is less "like/dislike" and more about closing loopholes.


Cheers


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## Cronos Canada

Eclectic12 said:


> Having seen companies as well as gov'ts go the "contractor" route for long periods, with no other employer involved as well as no contractor style decisions to make ... IMO it is less "like/dislike" and more about closing loopholes.
> 
> 
> Cheers


You make a very good point that CRA is much more motivated to close loopholes than my loose terminology of "not liking" something. CRA typically wants to go after employers who hire workers as independent contractors rather than employees as they see this practice as a loophole given that independent contractor have less security and benefits than employees. 

The problem here is that CRA can't go after a foreign employer outside of its legal jurisdiction, and hence its only recourse is to go after the independent contractor instead! CRA does so by declaring the independent contractor a Personal Service Business (PSB) so that the worker cannot benefit from being its own business such as writing off expenses against income, and utilizing the 15% small business tax rate. To make matters worst, the combined full corporate tax rate with your personal income tax rate would be higher than even the highest marginal personal tax rate!


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