Working Remotely for a Canadian Employer Abroad: Tax, CPP, EI

Working remotely for a Canadian company from abroad: what comes off your pay?

Once you are a non-resident and do the work outside Canada, a Canadian employer generally deducts no Canadian income tax, CPP or EI. The exceptions are pay for days you work in Canada, certain pay to former residents, and CPP or EI cases where you still report to a Canadian office or usually reside in Canada.

The rule is simple only when three things are clear: you have actually stopped being a Canadian resident, you do no work days in Canada, and your new country's rules are settled. A case needs judgment when you fly back to work, receive stock awards or bonuses earned partly before the move, claim a treaty exemption, the year of departure splits your pay, or your residency is unclear because you kept the Canadian job.

Keeping a Canadian job does not by itself keep you resident, but the CRA counts employment with a Canadian employer as one secondary tie when it weighs residency (Folio S5-F1-C1); see Canadian tax residency.

Gather your departure date, a calendar of days worked in and outside Canada, your employment contract, pay stubs before and after the move, and any letter from the employer about payroll changes. When Canadian withholding stops, check how your new country taxes and collects tax on this pay; that is under its law and not covered here.

Should my Canadian employer stop deducting income tax once I'm a non-resident?

Generally yes. Regulation 104(2) says no tax is withheld from pay to an employee who was neither employed nor resident in Canada when paid, except pay for duties performed in Canada and remuneration described in section 115(2)(e)(i) paid to someone who ceased to be resident.

That second exception applies from your departure year on. It keeps withholding on pay from a Canadian resident for work abroad unless that pay is subject to income tax in another country, or is earned selling, negotiating contracts or providing services in the employer's ordinary business (section 115(2)(e)(i)). Moving to a country with no income tax on your pay can therefore keep Canadian withholding on. Whether Canada finally taxes that pay is a separate test: see the non-resident return guide.

Withholding is not the final answer. The CRA says a non-resident paid by a Canadian resident for work in another country may still have to file a Canadian return when a treaty exempts that pay from tax in the country where they live. Whether you stopped being a resident at all is a separate question: see Canadian tax residency.

Do I pay CPP if I work abroad for a Canadian employer?

Usually not, once you live abroad and don't report to a Canadian office. The CRA says employment outside Canada is pensionable (CPP is deducted) only if one of these applies:

• you usually report for work at the employer's place of business in Canada, or
• you are a Canadian resident and are paid from the employer's place of business in Canada.

If neither applies, the employer does not deduct CPP. The employer may choose to extend CPP coverage by filing Form CPT8, but not when Canada has a social security agreement with the country where you work. When CPP does apply, the employee and employer each pay 5.95% on the first band of earnings.

If you and your employer disagree on whether CPP or EI applies, either of you can ask the CRA for a ruling; the deadline is June 29 of the year after the year the question relates to (CRA).

Does EI still come off my pay when I live abroad?

Only if all four conditions hold. The CRA requires EI premiums on pay for work outside Canada when:

1. the employer resides in Canada or has a place of business here,
2. the employee usually resides in Canada,
3. the work is not insurable (covered by unemployment insurance) in the country where it is done, and
4. the work is not excluded from insurable employment for another reason.

Someone who has moved abroad for good usually fails the second condition, so EI stops. Someone working abroad only for a while may still usually reside in Canada.

Could I owe social security in both countries?

Possibly, if your new country requires contributions and Canada still collects CPP. Canada's social security agreements aim to stop workers contributing to both systems (CRA). The CRA's country table lists each agreement, its form and the longest time you can be sent there and stay in CPP; the United States, Mexico, Portugal and the United Kingdom are among them.

A Canadian certificate of coverage shows you stay under CPP and are exempt from the host country's system (CRA). The CRA describes it for an employee the employer sends temporarily to an agreement country who will resume work in Canada afterwards, up to that agreement's time limit. A permanent move usually does not fit that description, so the host country's own rules, read with the agreement, decide what you owe there.

With no agreement, both countries can apply their own rules. These agreements coordinate CPP coverage; for EI, the four conditions above apply.

What happens to my pay for days I fly back to Canada to work?

Pay for duties performed in Canada is taxable in Canada and subject to withholding. Section 115(1)(a)(i) taxes a non-resident's income from employment duties performed in Canada, and Regulation 104(2)(b) keeps withholding on pay reasonably attributable to them.

A treaty may still exempt it. The CRA's T4058 describes two tests some treaties use: the pay is under a set amount, or you were in Canada 183 days or less and your employer was not a Canadian resident. With a Canadian employer only the amount test can help, and not every treaty has one, so check your treaty's own wording.

If your treaty's wording does exempt the pay, a non-resident employee, or the employer with the employee's authorization, can ask the CRA to waive Regulation 102 withholding, ideally 30 days before the work or first payment; a waiver covers only payments made after it is issued (IC75-6). Otherwise the employer withholds; an employer that fails to is liable for the whole amount plus interest and penalties. Either way, you file a Canadian return for the Canada-day pay by April 30 of the following year, to pay the tax or get the withholding back (IC75-6).

Keep a dated log of every work day in Canada. The employer needs it to split your pay, and you need it for the return.

The year I move: how is pay before and after my departure date taxed?

Pay up to your departure date is resident income; after it, only Canadian-source income counts. In the departure year you report your world income for the part of the year you were resident (CRA), and as a non-resident afterwards you pay Canadian tax only on Canadian-source income. How the departure return splits income, deductions and credits, and how overpaid CPP or EI comes back, is covered in your return in the year you leave.

Your departure date drives the split, so pin it down first: see the date you become a non-resident. Tell your employer the date in writing; the CRA says to tell Canadian payers you are no longer resident. Bonuses, vacation pay or stock awards paid after the move but earned partly before it need their own split: see departure tax on stock options and RSUs (or, for a move to the US, stock awards and pay after a move) and severance and final pay.

What slip should I get, and what if Canadian tax was withheld anyway?

You normally get a T4 from your Canadian employer. The RC4120 guide requires a T4 when tax, CPP or EI was deducted or pay exceeds $500. Box 10 is the province of employment. A full-time remote employee reasonably attached to an employer establishment is treated as reporting there; otherwise, a home-office employee gets the province from which pay is issued. The codes US (United States) and ZZ (another country) exist for work outside Canada. Which one applies depends on these facts, so ask your employer before assuming the slip is wrong. Box 28 is ticked where CPP or EI did not have to be withheld for the whole year.

If the slip is wrong (CPP, EI or tax taken when it should not have been), ask the employer to correct it first. Income tax over-withheld is recovered by filing a Canadian return (IC75-6); see the non-resident return guide.

Can I stay in my employer's group RRSP or pension plan from abroad?

That depends on the plan's terms, so ask the plan administrator before you move. For your choices, see workplace pensions when you move abroad and RRSPs and TFSAs after leaving Canada.

What should I give my employer, and what should I keep?

Give the employer facts, not conclusions, and keep the evidence. Your new country may also require the employer to register or run payroll there; that is under that country's law and not covered here.

A worker can ask the CRA for a residency determination with Form NR73, and the CRA also considers that decision for CPP and EI (CRA). Whether sending it helps your case is covered in asking the CRA to decide your residency.

Example

These examples are illustrative and use Canadian dollars.

An analyst moves to Portugal for good

A Vancouver analyst moves permanently to Portugal and works from home there, reporting to no Canadian office. Once she is a non-resident, her employer should generally stop income tax, CPP and EI deductions, provided she does no work in Canada: she neither reports to a Canadian place of business nor usually resides in Canada. Portugal has a social security agreement with Canada, so Form CPT8 is not available, and a certificate of coverage is meant for temporary postings. Portugal's rules, read with the agreement, decide her contributions there.

A product manager in Mexico flies back for 20 days

A product manager living in Mexico earns C$120,000 a year over about 240 working days. He spends 20 working days at the Toronto office. About C$10,000 (C$120,000 × 20 ÷ 240) is pay for duties in Canada. The employer withholds on that part unless the CRA has issued a waiver. The Canada–Mexico treaty exempts the pay if the year's Canada-day pay is C$16,000 or less, whoever the employer is (Article 14). His C$10,000 qualifies, so Canada cannot tax it: he asks for a waiver before the trip, or files a Canadian non-resident return to get the withholding back.

An employee leaves Calgary on 30 June

• January to June: pay is resident income, reported on the departure return with CPP and EI deducted as usual.
• July to December: she works only abroad and her new country taxes the pay, so Regulation 104(2) ends withholding; CPP and EI stop once their conditions fail.
• Following spring: she files the departure return, and her T4 shows the full year's pay and deductions.

Different for you?

• You fly back to Canada to work, have stock awards, or want to claim a treaty exemption: the split and the treaty test need a careful look; get individual tax help.
• You are not sure you stopped being a resident: see Canadian tax residency; if the CRA has asked, or you kept strong ties, get individual tax help.
• Your T4 shows tax, CPP or EI that should not have been taken, or the CRA has written to you: see a tax refund as a non-resident and get individual tax help.
• Your employer sent you abroad for a fixed term and you'll come back: see working abroad for a few years.
• You need to file, or missed years, as a non-resident with Canadian pay: see the non-resident return and catch-up guide and get individual tax help.
• You live in the US and work for a Canadian employer: see working for your Canadian employer from the US.
• You travel full time working online with no fixed home abroad: see digital nomads and Canadian tax residency.
• You are self-employed with Canadian clients: see Canadian clients after moving abroad.
• You run the business hiring someone across the border: see hiring an employee across the border.
• You live in Canada and work for a foreign employer: see remote work for employers and clients abroad.
• You are leaving Canada and want the full picture: see leaving Canada.