Canadian working remotely for a US company: how do taxes work?
Important disclaimer: I am NOT a lawyer. This is based on my personal experience and my understanding of the law.
I get asked that a lot, so I thought I would write it down so people can refer to it. Questions I often get are generally related to visa and/or taxes. This post is going to talk about taxes.
Let’s start with some context: I live in Canada, and never lived anywhere else. I had to travel for meetings and stuff like that in the past, but that’s about it. I am a software developer, and this applies to my very specific case. So keep this context in mind as you read through this.
Welcome in a world of grey zones.
Let’s dive right in.
Taxes
Where will I pay taxes?
It depends™. In theory, according to the treaty between Canada and US, you could pay taxes… in one, both, or none of the countries. Yes, all those are possible! Don’t worry though, in all cases, at the end of the year, you will pay the same thing, at least, in theory.
Before landing my first remote job, I called the Canada Revenue Agency (CRA)…I ended up talking with a department called something like “the foreign incomes department”. Here is what they told me, after having to wait while the woman was looking at my case, or at least, how I am paraphrasing it several years later: “OK, so my understanding is that you should pay taxes in Canada, not in the US…but you could pay in the US too, or just in the US. It depends on the payroll system of the company. In all cases, the US taxes would be transferable to Canada and if you pay taxes in both countries you would be able to transfer the US taxes to Canada and it would end up being the same numbers as you would have a return. This is MY understanding of the treaty and is not usable in court, so I am going to refer you to the treaty [of income something something] at this URL […]”. I hang up and go to the URL. The treaty between Canada & US she referred me to is…over 200-300 pages! Obviously, not written in friendly terms, I was lost after well under a page.
I took the job, it should be fine after all? In theory. It ended up always being fine by the way.
Fun story: I called back for followup questions a few times, and they don’t have a direct number, so you need to go through the usual CRA number. Most of the time people were like “sorry, this department doesn’t exist”…to what I answer “well, I just talked to someone from that department, so you should double-check”. Sometime I had to hangup and callback to get a different agent, until I found someone who knew about it. Interesting huh?
Less fun story: my understanding, based on my experience working for two different US based startups, is that they need to have a Canadian entity of some sort to be able to pay you and withhold taxes and all that jazz on your pay. It’s a ton of paper work. When I went to the office Gracious Eloise in New York City, Paul (the COO) showed me two piles of documents. One was 2 or 3 times bigger, or something like that. The big pile was the paperwork for me. Only me. The other one was the paperwork for all the US employees (around 10 I think at the time?), TOGETHER!
Weird story: at the end of the year, we have a T4, right? In Quebec, we usually have “Relevé 1” too, which is the equivalent at the provincial level. I never had a “Relevé 1” when working for a startup, and the province showing on my T4 was “ON” (Ontario) for the first job, and “US” for the second one .Yes, “US” is technically a valid province for a T4. It’s all fine, tax software can work with it, “everything” is transferred automatically between all the level of taxations, nothing major. There was just one exception, which was the parental leave thing in Quebec, which is around $200-300/year, no big deal.
How is tax calculated?
On the total of Canadian dollars you do. Not an approximation, it HAS to be changed 100% (or that’s what I was told at least). There is no way to keep it in USD. If you want it in USD, change it in CAD then back in USD, but there are fees, so probably not a good idea.
What if I am hired as a freelancer?
I’m not 100% sure, but I think you will have to take care of everything: you send an invoice, they send money, you pay taxes at the end of the year (or every quarter or whatever the rules are in your province, for your case). That’s about it. I don’t see how or why it would be any different than this.
What about X?
There is a lot more to say.
I wrote about people who change your life and how I landed my remote jobs and contracts and I might write about more remote-related subjects. Feel free to poke me on Twitter if you have more questions.
I am consulting for distributed teams and nomad workers, so if you want to hire me for a 1-on-1, help with your distributed team or as speaker on the subject, just drop me an email.
Feel free to ask questions in the comments.
