Canadians get around.
In fact, according to the Government of Canada, there are currently 4 million Canadians living abroad right now.
However, what’s important to keep in mind is that not each Canadian abides by the same rules when it comes to their residency status, and it’s key that any employer recognizes the residency status of a Canadian employee before taking them on as a potential hire.
What this report aims to showcase is how the nature of Canadian residency status may change on a case-by-case basis, and more importantly, what employers should look out for when hiring Canadians working from home or abroad.
Emigrated Canadians
As previously mentioned, not every Canadian adheres to the same residency and taxation standards. For starters, let’s break down the nature of an individual who has left or is leaving Canada permanently and what this means for their residency status.
A Canadian operating on what’s known as an ‘emigrated status’ will have different tax obligations to Canada. According to Canadian regulations, emigrated Canadians have severed what is known as ‘residential ties’ with their home country and no longer have the same rights as certain residents.
This separation of ties often comes in the form of,
- Disposal of a residence or home in Canada in pursuit of living elsewhere.
- Personal ties or property are withdrawn to depart the country.
- Spouses or dependents leave Canada.
Canadians who are operating on an emigrated status have most likely gone through a lengthy bureaucratic process to do so.
Apart from severing the residential ties that apply to their initial departure, secondary ties also come into play, which can be a wide variety of applications, such as credit cards, passports and other IDs as well as insurance plans.
Newly emigrated Canadians may still have some lingering tax obligations to Canada, and these can come in the form of taxesowed to the Canada Revenue Agency (CRA) or a tax refund yet to be deposited due to overpayment from a previous tax year.
With this in mind, there are still variables one must look out for when operating as an emigrated Canadian or looking to hire one.
Legal considerations for emigrants
- Tax Considerations: Income received by an emigrated Canadian working abroad will adhere to the tax laws of the company paying them.
- Tax Laws: Depending on the country of the employer and their current country of residence for the emigrated Canadian, two types of tax regulations may need to be taken into account.
- Work Authorization: Depending on the intended country an emigrated Canadian is moving to, work permits and visas may still apply.
- Work Agreements: Emigrated Canadian workers still need to adhere to the contracts laid out to them by prospective employers.
- Time Difference and Communication: Depending on the country of residence of the emigrated Canadian, you may have to take into account the difference in time zones.
- Exchange Rate: Banking fees may apply to emigrated Canadians receiving income from a foreign employer, depending on their new country of residence.
In summary, the residential status of an emigrated Canadian should be air-tight — as by definition — they are an individual who has renounced both Canadian tax benefits and employment rights by going through the proper channels and severing ties with their home country.
When looking to hire a Canadian citizen working abroad, an emigrated Canadian should come with no loose ends, making for an easy hire as they likely are available to work in their new country of residence or remotely.
Non-Resident Canadians
This section may appear out of place, as why even consider non-residents of Canada when looking for Canadian workers?
Well, here’s the catch, a non-resident may still reside in both Canada and another country simultaneously, putting them in a unique position when it comes to their residential status. Primarily, these individuals (when operating in Canada) operate under Canadian tax regulations when are on the receiving end of a Canadian income stream.
These individuals can work remotely as well as work from anywhere they desire.
For example, an individual who lives in Canada outside of the limits of the tax year and has a secondary residence in the U.S. will have to file a separate tax return for strictly any income earned from Canadian sources. Much like emigrated Canadians, non-residents can be easy hires for non-Canadian enterprises as their residency status remains in a grey area, permitting them to work remotely with ease.
However, depending on the country where the non-resident spends the majority of their tax year, the same variables need to be taken into account as with emigrated workers — with some minor differences.
Legal considerations for non-residents
- Tax Considerations: Income received by a Canadian non-resident working abroad will adhere to the tax laws of the company paying them and the country where they reside.
- Tax Laws: Depending on the country of both the employer and the non-resident Canadian, several types of tax regulations may need to be taken into account.
- Work Authorization: Work permits and visas apply for non-resident Canadians and may depend on their most active country of residence for the non-resident worker.
- Work Agreements: Non-resident Canadian workers still need to adhere to the contracts laid out to them by employers.
- Time Difference and Communication: Depending on the country of residence of the non-resident Canadian, differences in time zones may come into play.
- Exchange Rate: Banking fees still apply to non-resident Canadians, whether they chose to spend the majority of their tax year in or outside of Canada.
Non-resident and emigrated Canadian workers share some DNA when it comes to their residency status when working abroad. However, one must keep in mind the key differences between the two when looking into hiring either for remote work.
Active Resident Canadians
When looking to hire Canadian workers, you may look into taking on professionals who still live in their country of origin. Remote work has continued to be a viable approach for many Canadian workers, and as a result, many are looking at working for international partners remotely from their homes.
Residents of Canada abide by income tax rules set by the Canadian government, by default, residents maintain active ties in the form of bank accounts, forms of ID and property. As a result, they are locked into the Canadian tax cycle and pay income tax correlated to their country of residence.
Canadian residents who often travel and work abroad must abide by the “183-Day Rule” encouraged by the government of Canada. This non-official statute dictates that if you live in Canada under the status of an active resident, you must take into account your earnings within the tax year.
Legal considerations for residents
- Tax Considerations: Income received by Canadian residents correlates to Canadian income tax.
- Tax Laws: Canadian residents abide by the tax standards set by the Government of Canada.
- Work Authorization: Work permits and visas apply for Canadian residents looking to work outside of the country, this excludes remote workers.
- Work Agreements: Canadian residents still operate under the rules set by the contract dictated by their employer, regardless if they are based out of the country.
- Time Difference and Communication: Canadian residents working remotely need to be notified of any differences in time zone by a prospective employer.
- Exchange Rate: Canadian residents will operate through Canadian banks, meaning foreign income may be susceptible to banking fees due to the exchange rate.
Active residents of Canada are still easy to hire when it comes to working remotely, as they have fixed income tax rules set by their country of residence and operate through Canadian banking channels — keeping everything in one place.
However, if an active resident is a Canadian citizen working abroad, it is their responsibility to keep track of their time spent out of the country, and more importantly, manage their income stream from both domestic and out-of-country sources.
Canadian Tax Treaties
Due to the varied nature of the residency status of Canadians working abroad, the Government of Canada has implemented certain legislation to make things smoother for Canadians who are receiving revenue from employers both inside and outside of Canada.
Tax treaties are incentives put in place between the Canadian government and select countries in an effort to monitor the activities of Canadians with varying residency statuses, specifically, where their income is coming from.
These agreements make sure the resident in question does not engage in actions like tax evasion or ensure the resident does not get double-taxed on certain income streams.
Here are some core signifiers of the function of a tax treaty.
- A tax treaty dictates what country has the right to tax specific income streams.
- Lays out the rules for specific taxation methods between Canada and the other participating country.
- Reduce tax burdens on cross-border transactions.
- Dictate specific taxation laws if the residency status of an individual belongs to two countries.
- Exchanges information between the tax authorities of two countries to prevent tax evasion.
- Ensures that both countries do not discriminate against an individual in terms of taxation standards.
- Calculates tax credits between two countries that the resident belongs to.
For those inquiring about what specific countries have a tax treaty with Canada, the government of Canada has provided streamlined information for those inquiring.
Hiring a Canadian Resident to Work Remotely
Now that we’ve covered the expansive nature of the residency status of Canadian workers, we can now summarize what to take into account if you are an employer looking to hire Canadian talent operating out of home or abroad.
With remote jobs on the rise and job seekers looking for better work life balance, companies are increasingly offering a flexible work schedule as a huge benefit to candidates. Just over half of employers in Canada adopted a hybrid model.
Offering a remote job over an in office job has many benefits for a typical company, including business development and a better work environment. Meanwhile, employees have more time to focus on their personal life, physical health, and mental health.
But with so many remote working opportunities, what are the employer's responsibilities and legal repercussions of hiring Canadian talent with different residency status?
However, what are the responsibilities that fall on an employer looking to engage with Canadian talent?
A foreign entity cannot hire Canadian workers without implementing certain regulatory actions themselves. If a non-Canadian organization is looking to hire Canadian workers without having a separate Canadian branch of their enterprise recognized by the Canadian Revenue Agency (CRA), they are at risk of violating Canadian tax laws.
Meanwhile, a Canadian company will still need to be aware of their employee's residency and tax obligations to properly adhere to contractual and tax obligations.
If you are looking to hire Canadians working from home or abroad, there are plenty of solutions you can implement to ensure you are doing everything back the book when considering bringing on Canadian talent.
Non-resident Employer Registration
The Canada Revenue Agency (CRA) allows certain organizations to apply as a non-resident business. What this entails is that the potential employer registers as a non-Canadian entity to register with the CRA in order to prevent any mishaps concerning tax regulations or payroll.
If the company in question successfully registers for this designation, they will be provided with a number that will allow them to process payment to their Canadian workers through the CRA.
However, it is important to keep in mind that you look into the residency status of who you are looking to hire before taking this kind of step.
Other essential steps include,
- Determining Registration Obligations
- Completing Application Forms
- Obtaining Identification Numbers
- Complying with Tax Withholding
- Meeting Reporting Obligations
- Understanding Employment Laws
Engaging Contractors
Over the last few years working from anywhere and working remotely has become commonplace among many employers, and the majority of this approach can be found when employers consider hiring freelancers or contractors.
The key difference here is that if you are looking to hire Canadian talent through this method, they will not be an official employee, but will instead be registered as a contractor, freelancer or service provider.
Keep in mind that payment may still be susceptible to banking fees if payment is impacted by a foreign exchange rate.
Borderless and Professional Employer Organizations
This is where we come in.
For organizations unsure if they want to dedicate the time and energy to registering their enterprise through the Canadian Revenue Agency as a non-resident employer, or don’t want to keep track of the bouncing ball of freelancers and contractors on their payroll, there are Professional Employer Organizations (PEO) — like us.
What we do is find the right kind of talent for your organization and take facilitate the logistics by operating as the in-between service between you and the individual of your choice.
How we do this is by operating as the employer of record and handling certain administrative duties while your business handles the task of dictating tasks to the employee as normal.
Other duties include,
- Facilitating the Co-Employment Relationship
- HR Services
- Employee Onboarding and Management
- Payroll
- Employee Benefits
Conclusion
In summary, when it comes to the residency status of Canadians and the logistics behind them working abroad, there are numerous variables at play when it comes to hiring the process.
While some solutions may work best for you than others, we offer you the opportunity to bring us on as your mediator between you and your Canadian hires.
Disclaimer
Borderless does not provide legal services or legal advice to anyone. This includes customers, contractors, employees, partners, and the general public. We are not lawyers or paralegals. Please read our full disclaimer here.
