Self-Employed With Canadian Clients After Moving Abroad

Freelancer moved abroad with Canadian clients: does Canada still tax the fees?

Once you are a non-resident, Canada taxes your self-employed income only if you carry on business in Canada. Fees for work you do entirely in another country, for a Canadian client, are generally not taxed in Canada. A non-resident who carried on business in Canada pays tax on income from that business (Income Tax Act s. 2(3); s. 115(1)).

That is for fees for services. A licence or royalty for the right to use something in Canada (a design, software, images, a trademark) is different: the Canadian payer generally withholds 25%, subject to an exception for copyright in literary, dramatic, musical and artistic work and to any lower treaty rate (s. 212(1)(d)). Bill services and licences on separate lines.

What makes a case not simple:

• You still do some work in Canada: trips home, on-site days, a laptop week at a family cottage.
• You keep an office, staff or someone who finds or signs clients for you in Canada.
• You left part-way through the year, so one return mixes resident and non-resident months.
• Your new country taxes the same fees and you need a treaty position.
• You are still registered for GST/HST and are unsure whether to charge it.
• A client keeps issuing T4As for work you did abroad.

What to gather: your departure date, invoices split by where the work was done, a calendar of days spent in Canada, any T4A or T4A-NR slips, your GST/HST account number, and your new country's tax registration. If you are unsure of the date you became a non-resident, see the date you become a non-resident.

When does serving Canadian clients from abroad still count as carrying on business in Canada?

Where you physically do the work is usually the main factor, not where the client is or where the money lands, but people or an office in Canada can change the answer. Whether a non-resident carries on business in Canada is a question of fact. The CRA's GST/HST guide lists factors such as the place where the service is performed, where agents or employees are located, where contracts are made, and the location of a branch or office (RC4027). That list is written for GST/HST; for income tax the answer also turns on the facts, so the same points are the ones to document.

The Income Tax Act also deems a non-resident to carry on business in Canada in some cases, even without an office (s. 253):

Section 253 applies "in respect of the activity", so a short stint of work in Canada can bring that part of the income into Canada; how the rest is treated depends on the facts and your records.

A client still sends me a T4A: does that make the income Canadian?

No. A slip reports a payment; it does not decide whether Canada can tax it. What matters is whether you carried on business in Canada: mainly where the work was done, but also whether someone in Canada finds or signs clients for you. Fees for services performed outside Canada are not subject to the 15% Regulation 105 withholding on non-residents' fees for work done in Canada (IC75-6, paragraph 32).

Ask each client to:

1. Update your address and mark you as a non-resident payee.
2. Note on each invoice where the work was performed.
3. Report any fees for work you do in Canada on a T4A-NR, the slip for payments to non-residents for services in Canada (RC4445).

Keep the slip, your request and the invoices. A slip for work done abroad after you became a non-resident may be a paperwork mismatch to explain rather than income to add. A slip that covers months before you left can include fees you must report on your departure-year return, wherever the work was done.

What changes when I fly back and do some work in Canada?

Every payer of a fee to a non-resident for services rendered in Canada must withhold 15% of the payment (Regulation 105). The CRA says this includes a non-resident payer (Rendering services in Canada). A payer that does not withhold and remit is liable for the amount itself, with interest and penalties, including a 10% penalty on the tax not deducted (IC75-6, paragraph 41; RC4445), so expect clients to withhold unless you show a CRA waiver letter. Only the part of a fee for work done in Canada is subject; the payer makes a reasonable allocation and keeps support for it (IC75-6).

The trap: a trip home to finish a project on a laptop is still service performed in Canada. The payer's side of these rules, in detail, is in withholding on services in Canada. Which return package to file, and by when, is in the non-resident return guide.

Do I charge GST/HST to Canadian clients if I live abroad?

Usually not. A service you perform wholly outside Canada is deemed supplied outside Canada, so it carries no GST/HST under the normal rules, even while you are still registered (Excise Tax Act s. 142(2)(g)). GST/HST comes back for work done partly in Canada and for licences of designs, software or images that may be used in Canada: those supplies are made in Canada and can be taxable if you are registered or still carry on business here (s. 142(1); s. 143(1)). A non-resident generally must register for GST/HST under the normal regime if it carries on business in Canada and makes taxable supplies there, and is not a small supplier (RC4027). The small supplier limit is $30,000 of worldwide taxable sales in a calendar quarter or over four consecutive quarters (CRA). A separate rule applies if you sell admissions to a seminar, workshop or event you hold in Canada: you must register whatever your sales (RC4027).

Two situations still need a look:

• Sales to individuals, not businesses. A non-resident who does not carry on business in Canada may have to register under the simplified regime if its sales of services and digital products to Canadian consumers who are not GST/HST registrants pass $30,000 in any 12-month period (CRA). See non-resident and digital sellers.
• An old registration you kept. While you stay registered, work done partly in Canada and licences usable in Canada can still be taxable; services performed wholly abroad are not (Excise Tax Act s. 143(1)). If you no longer carry on business in Canada, review whether to cancel the registration and file the final return; see closing a GST/HST account.

Does the year I leave split the business year?

Yes. In the departure year you report world income for the months you were resident, and for the months after only certain Canadian-source income (CRA: Leaving Canada; Income Tax Act s. 114). Fees for the resident months go on your T2125, the business income statement on your return, as usual. Fees after departure count only if they come from business carried on in Canada. How deductions and credits split on that return is covered in the part-year return in the year you leave.

Split invoices at the departure date by when the work was done. Closing the sole proprietorship, the final T2125 and business assets you keep are covered in closing a sole proprietorship when leaving Canada.

Do I keep paying CPP on self-employed earnings after I leave?

The Canada Pension Plan requires a self-employed contribution from an individual who is resident in Canada for income tax purposes during a year and has contributory self-employed earnings (CPP s. 10(1); earnings defined in s. 14). Self-employed earnings while resident, including in the departure year, are part of that calculation.

For a later year in which you are not resident in Canada at any time, section 10(1) does not require a self-employed contribution, even on fees for work done in Canada. The departure year is the one to check: neither section 10 nor section 14 says directly how Canadian business income earned after you left counts for that year, so confirm it before filing. Whether you pay into your new country's system, and whether Canada has a social security agreement with it, depends on that country; if both may apply, see cross-border tax help. If you are also a US citizen, see self-employment tax abroad.

What does a tax treaty add?

A treaty can stop Canada taxing business income that the Income Tax Act would otherwise reach. In the Canada–US treaty, for example, business profits of a resident of one country are taxable only there unless earned through a permanent establishment in the other country, generally a fixed place of business (Articles V and VII). A person who habitually concludes contracts in your name can also create one. So can long stays: under Article V(9), a one-person business is deemed to have one if you are present in the other country 183 days or more in any 12-month period and more than half of your gross active business revenue in that period comes from the services performed there; a separate test catches 183 days or more on one project for customers there.

Each treaty is different. Some older treaties have a separate article for independent personal services, which looks at whether you have a fixed base, such as an office regularly available to you, in Canada. If your new country has no treaty with Canada, there is no permanent-establishment or fixed-base protection: the Income Tax Act rules above decide alone, though an individual from a non-treaty country whose income for the calendar year is under CAN$5,000 may still apply for a waiver (IC75-6, Appendix A). Read the treaty with your new country from Finance Canada's list. Treaty protection is also one basis for a Regulation 105 waiver, so decide your position before you work in Canada, not after the fee is withheld. Treaty protection or a waiver does not remove the return: a non-resident who performs services in Canada is still normally required to file one (IC75-6, paragraph 53). On that return you claim treaty-exempt income on line 25600 and the tax withheld on your T4A-NR on line 43700 (T4058).

What records prove where I did the work?

Keep records that show, day by day, where you were and what you worked on:

• Invoices that state where the work was performed.
• A travel calendar with entry and exit dates (boarding passes, passport stamps).
• Time logs or project files with dates.
• Contracts showing where they were signed and who signed for you.
• Your lease, workspace and tax registration in the new country.
• Correspondence asking clients to correct slips.

A payer also needs support for any allocation between Canadian and foreign work (IC75-6), so share the split with the client when you invoice.

Example

These examples are illustrative; figures are in Canadian dollars.

All work abroad

Ana, a designer, moves to Lisbon in March. Her January to March fees go on her departure-year T2125 with her other world income. After the move she bills Toronto clients C$60,000, all designed in Portugal. Those later fees are generally not income from a business carried on in Canada. She asks her clients to update her as a non-resident payee and to stop issuing T4As.

A trip home

Ben, now living in Dubai, spends two weeks on site in Vancouver on a C$20,000 contract, all of it done there. With no waiver in place, the client withholds 15%, C$3,000, and gives him a T4A-NR. Ben files a Canadian non-resident return for the year. The return works out his actual tax on that income, or claims a treaty exemption if one applies; if the C$3,000 withheld is more than that tax, the difference can be refunded.

An old GST/HST number

Carla kept her GST/HST number after moving and now works only from abroad for business clients. Her services are performed wholly outside Canada, so they carry no GST/HST even while she is registered. If she no longer carries on business in Canada, she looks at cancelling the registration and filing the final return.

Different for you?

• You return to Canada for regular workdays (including in Québec), or keep staff or an office here: you may be carrying on business in Canada; get cross-border tax help before the next trip.
• Your new country taxes the same fees, or you want a treaty-based waiver: the treaty position needs a review; see cross-border tax help.
• A client will not correct a slip, or the CRA has sent a letter about fees for work done abroad: the mismatch needs an explanation backed by your records; get cross-border tax help.
• You work as an employee, not a contractor: see working for a Canadian employer from abroad.
• You bill through your own corporation: see paying yourself from your corporation after moving abroad.
• You missed non-resident returns for past years: see non-resident returns and catch-up.
• You still live in Canada and serve clients abroad: see remote work for employers and clients abroad.
• You want the basics of how self-employed income is taxed while resident: see how self-employed income is taxed.