Working in Canada for an Employer or Clients Abroad

If I work in Canada for a foreign employer, where is my salary taxable?

A Canadian tax resident reports salary for work done in Canada on a Canadian return. For employment income, the CRA treats the physical place where you normally perform your duties as the source; the employer's address does not move those workdays abroad (CRA foreign tax credit folio, paragraph 1.57).

Canadian residents generally report income from both Canadian and foreign sources. The place of work still matters because it determines whether foreign tax on the pay can qualify for a Canadian credit (CRA: tax obligations of residents). A foreign employer, foreign currency or foreign deposit account does not by itself change the source of salary earned at your desk in Canada.

If both countries treat you as resident, check the treaty residence tie-breaker first. A person treated as resident only in the other country under the treaty is deemed non-resident of Canada under Income Tax Act subsection 250(5); Canadian work can still be taxable here under non-resident rules (CRA residence folio, paragraphs 1.37–1.45; Income Tax Act, subsection 250(5)).

Does a foreign employer or an account abroad change what I report?

No. A Canadian tax resident reports the full employment or business income earned while resident, including money left in an account abroad (CRA: tax obligations of residents).

Keep the account question separate from the pay. Interest earned in that account is another kind of income; ownership of foreign property may also create a Form T1135 filing duty. See foreign income on a Canadian return and foreign property and affiliate reporting. If you became a Canadian tax resident during the year, report worldwide income for the resident part. For the earlier part, Canadian tax may still apply to work done in Canada, but generally not to work done abroad (CRA: newcomers' income reporting). See your first year as a Canadian tax resident for the full return.

Can I credit foreign income tax withheld from Canadian work?

Usually not for work performed wholly in Canada. The CRA says foreign tax on income earned in Canada generally cannot be claimed as a foreign tax credit; a tax withheld abroad is not proof that the foreign country was entitled to keep it (CRA: foreign tax credit for residents).

Ask the employer for the reason for withholding, then check the other country's law and its tax treaty with Canada. If the tax is refundable, seek the refund there. The CRA excludes tax that is or will be refunded, and tax paid voluntarily where a treaty prevents the other country from charging it. It tells taxpayers to seek a foreign refund for withholding above a treaty limit (CRA foreign tax credit folio, paragraphs 1.33–1.35).

Foreign tax can be creditable when some duties were actually performed abroad and the other country can tax that income. The calculation is country by country and limited by Canadian tax on the foreign income. See foreign income on a Canadian return. If the CRA asks for proof of a credit already claimed, see foreign tax credit review.

How do I report foreign-currency salary without a Canadian T4?

First ask whether the employer should issue a Canadian T4; a foreign employer can have payroll reporting duties without a Canadian office (CRA employers' guide). If no T4 is issued, report gross employment pay on line 10400 in Canadian dollars. The CRA's general instructions cover employment earnings not shown on a T4. A foreign payer does not make Canadian workdays foreign-source (CRA: line 10400).

Convert each pay amount at the Bank of Canada rate when it arose. If pay arose at various times through the year, the CRA allows an annual average rate in appropriate circumstances. Keep pay records and the rates used; show foreign tax withheld separately (CRA: line 10400).

If you worked in Québec without an RL-1, ask the employer for one. If you cannot get it, estimate your gross pay and source deductions on your Québec return (Revenu Québec: line 101).

Does my foreign employer need Canadian payroll deductions?

Generally, yes for income tax: a foreign employer paying a Canadian resident for work in Canada must check Canadian withholding, remittance and T4 reporting even without a Canadian office. CPP and EI have separate coverage rules (CRA employers' guide, employer responsibilities).

If the employer has no Canadian establishment, CRA directs it to use the payroll tables for “In Canada beyond the limits of any province/territory or outside Canada” for a Canadian resident employee. A Québec resident still files a separate Québec return and may owe Québec tax on that pay (CRA: province of employment; Revenu Québec: line 101).

If income tax was not withheld, the employee still pays any balance on the return. The employer, including a sole proprietor, owes required CPP and EI amounts and may face a 10% failure-to-deduct penalty, rising to 20% for a later knowing or grossly negligent failure in the same calendar year. The employer also owes interest on missed income-tax withholding until the earlier of payment or April 30 of the following year; CRA may assess that interest and the penalty at any time (Income Tax Act, subsections 227(8), (8.3) and (10)). Corporate directors can also be personally liable for missed income-tax withholding, CPP and EI under Income Tax Act section 227.1, Canada Pension Plan section 21.1 and Employment Insurance Act section 83. Statutory recovery conditions and a due-diligence defence apply; proceedings must start within two years after the director last ceased to serve.

The non-resident employer certification exception described by the CRA is for qualifying non-resident employees working briefly in Canada; it does not generally remove withholding for someone who is a Canadian resident (CRA employers' guide, employment in Canada). The employer's setup steps belong in hiring an employee across the border.

Do I owe CPP or EI if my employer has no Canadian office?

CPP coverage is not automatic when a foreign employer has no Canadian place of business; the employer can apply to cover Canadian employment. EI is a separate test: most employment in Canada under an employment contract is insurable. Ask whether the employer elected CPP coverage, whether a social security agreement assigns pension coverage, and whether it deducts EI (CRA employers' guide, CPP coverage and EI).

Ask the employer whether it has a Canadian establishment and a coverage certificate. Gaining a Canadian establishment can change CPP coverage. Foreign social security deductions alone do not decide Canadian coverage (Canada Pension Plan Regulations, section 22).

When does missing Canadian withholding mean instalments?

You may need Canadian tax instalments if little Canadian tax is withheld and your net tax owing exceeds the applicable threshold both in the current year and in either of the two preceding years (CRA: who has to pay).

Foreign tax withheld is not Canadian tax withheld. If it cannot be credited, do not subtract it when estimating Canadian net tax owing. Compare your current-year estimate and either of the two preceding years with the thresholds below; use the CRA instalment calculation chart to estimate payments.

The CRA generally sets instalment due dates at March 15, June 15, September 15 and December 15, with the next business day allowed when a date falls on a weekend or recognized holiday (CRA: payment due dates). An instalment reminder is an estimate; compare it with your actual expected net tax owing. If the foreign employer starts Canadian deductions, the need for future instalments can change.

Late or short instalments can create daily interest when the calculated charge exceeds $25; an additional penalty can apply when instalment interest exceeds $1,000 (CRA: instalment interest and penalty).

If you live in Québec, check Revenu Québec instalments separately against your Québec net tax payable (Revenu Québec: instalment payments).

If I invoice clients abroad, is the income self-employment income?

If you run your own service business, you personally pay tax on its net income and any self-employed CPP or QPP contributions; your foreign client does not handle Canadian payroll on a genuine contractor invoice. Billing a foreign client or receiving payment in a foreign account does not turn the work into employment abroad (CRA: sole proprietorship; CRA foreign tax credit folio, paragraphs 1.53–1.54).

If you live in Québec, use Schedule R on your Québec return to calculate any QPIP premium on self-employment income (Revenu Québec: line 439).

EI premiums do not automatically apply to self-employment income. Eligible sole proprietors can opt into EI special benefits through an agreement in My Service Canada Account, then report premiums on Schedule 13 with the tax return. Premiums cover the full calendar year's self-employment income. Withdraw within 60 days of signing to avoid premiums; benefits require an agreement active for at least 12 months (Service Canada: eligibility; premiums; withdrawal).

An invoice does not settle whether you are an employee or self-employed. The CRA looks at the real working relationship: who controls the work, whether you operate your own business, and whether you have a chance of profit or loss. Either party can ask for a CPP/EI ruling if status is uncertain (CRA: employment status).

See how self-employed income is taxed for Form T2125 and CPP calculations. GST/HST is a separate question: some services to non-residents are zero-rated, but the service and recipient must meet the conditions (CRA: exported services). See when to register for GST/HST.

What changes if I work some days in the employer's country?

A Canadian tax resident still reports the full salary in Canada. For a foreign tax credit, the CRA usually allocates regular salary by working days in each country when duties abroad are significant; a treaty may change which country may tax it (CRA foreign tax credit folio, paragraphs 1.52 and 1.57). Keep a dated workday record and match foreign tax to the income the other country may tax. For a US employer or US workdays, use working across the border.

Example

Illustrative Canadian dollars; no tax rate is assumed. A Canadian resident performs all employment duties from home in Ontario for a foreign employer. Gross salary is C$80,000. The employer withholds C$12,000 of foreign income tax and no Canadian tax.

The worker reports C$80,000 of employment income in Canada, not C$68,000. Because every workday was in Canada, the C$12,000 withholding generally cannot be used as a Canadian foreign tax credit. The worker asks the employer and the foreign tax authority how to correct the foreign withholding. Canadian tax is calculated separately. The worker also asks about Canadian payroll, EI and CPP coverage, and checks whether instalments will be required.

Different for you?

Your work location, status or residence can change the answer. Gather your contract, residence and travel dates, workday calendar, pay statements or invoices, foreign tax slips and returns, and any coverage certificate before choosing a filing position.

• US employer or US workdays: see working across the border.
• Foreign workdays and tax correctly paid abroad: see foreign income on a Canadian return for the credit calculation.
• CRA questioned a credit: see foreign tax credit review.
• You invoice clients as a sole proprietor: see how self-employed income is taxed and GST/HST registration.
• Your employer has no Canadian payroll or you work in several countries: get individual tax help with the workday and withholding records; these facts affect tax credits, instalments and pension coverage.
• You live in Québec: QPP, Québec payroll and a Québec return need a separate check. See individual tax help; Revenu Québec also explains reporting income earned outside Québec.