Part Time Work & Play Outside Canada

In today's global economy, people routinely cross borders to work, live, or retire on a part-time basis. If you're planning on spending some time outside Canada, what should you consider?

"The minute you enter another country, you have to think about tax and immigration rules," says Chartered Accountant Habib Meghjee, Firm Director, International Assignment Services, Deloitte & Touche LLP in Toronto.

"Most people are oblivious to the global taxation rules, which can be very complex. If you are living in Canada and working abroad on an assignment, make sure you consult a tax professional with experience in cross-border tax issues."

"Living or retiring outside Canada beyond a certain period of time can also trigger further taxes," explains Chartered Accountant David Steinberg, Senior Tax Partner at RSM Richter LLP in Toronto.

"There are many different tax categories, and each country has different regulations. The key is whether you are considered resident or non-resident for income tax purposes. Most Canadians choose to remain resident-in-Canada."

What does working in another country mean from a tax perspective?

"Global travel covers many different categories," continues Meghjee," from frequent business travelers, to temporary placements of one month, to working abroad for up to several years. Since 9/11, there has been more scrutiny at the Canada-U.S. border, forcing business travellers to be more tax-compliant. It is not only limited to the U.S. but affects all business travel outside Canada.

"There is no single solution. Each traveller's tax circumstances vary and must be assessed on a case-by-case basis. For example, is there a tax treaty with the host country? Which country has tax jurisdiction? Does renting my home in Canada while working abroad have tax implications?"

"Canada has tax treaties with many countries, which are designed to provide tax relief. Even if a tax treaty exists, you may not be exempt from paying tax and/or filing in the host country," explains Meghjee.

"Although Canada has a tax treaty with the United States, certain states (i.e. California) have different tax laws. Executives and entrepreneurs at certain income levels can trigger a filing obligation in a particular state, sometimes within days.

"To assess your residency status in Canada, a Facts and Circumstances Test is used to determine if you are a resident or non-resident for tax purposes. Residents of Canada are taxed on their worldwide income, and non-residents are taxed on Canadian-sourced income or income earned while working in Canada," Meghjee further explains.

Prior to working abroad, he also suggests enquiring about visa and immigration requirements, as well as social security taxes, travel insurance, will preparation and tax-filing deadlines.

What happens tax-wise if you are retired and want to live outside Canada for a while?

Steinberg says it's fairly straightforward, as long as you have not ceased residency and Canada has a tax treaty with the country you're visiting, but be careful about the number of days you spend outside the country.

"The longer you spend outside Canada, the more complicated it becomes. If you are out of Canada and in the United States for more than 120 days, you should consider filing a "treaty-based" return in the U.S., indicating you are resident-in-Canada and not subject to taxation in the U.S. If you have employment or rental income in the U.S., you should file a tax return in the U.S. and then claim a credit for those taxes on your Canadian return.

"You will end up paying tax where the tax rate is greatest. If the U.S. tax rate is 20 per cent and the Canadian tax rate is 50 per cent, you pay a net rate of 30 per cent in Canada, in addition to the 20 per cent paid in the U.S.

"Be cautious about ceasing your Canadian residency because you are deemed to have disposed of all your Canadian assets, including any properties. This could result in significant Canadian tax," Steinberg advises.

"Even as a non-resident, you must still consider Canadian tax on Canadian source income. And, if you are living part-time outside Canada, you must still file a tax return here on your worldwide income. If the major source of your income is investment income, you may have to pay in installments."

Still interested in living or working outside Canada, even for a short time? Be smart, advise Meghjee and Steinberg, and get tax advice before you cross any borders.


For more information contact a Chartered Accountant.

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