Teleworking Abroad: What Are the Tax Implications for Employees?

Given the increasing telework options, it may be tempting to work abroad while continuing Canadian activities. What are the tax implications?

Because of the flexibility that comes with working from home, some people see this new reality as an opportunity to "follow the sun", pack up their computer and phone and work in a foreign country when it becomes possible. Are you aware of the tax implications for such a change?

Be aware of the tax impact

It is critical to understand the tax implications of working remotely when considering working from another country, whether permanently or temporarily. Do you need to pay taxes in the other country? What about your employer, how will they be impacted by your decision to work from abroad?

There may be numerous personal tax and compliance obligations from teleworking abroad, both in the country of residence and the foreign country. You need to ask several questions before deciding to work from abroad.

Additionally, it's important to let your employer know that you are planning to work from another country, as they will also have tax obligations and the resulting legal implications to consider.

What do you need to consider before working from abroad?

In addition to the tax considerations, the application of immigration and labour legislation in the foreign country must be taken into account before starting to work abroad.

What about your tax residence?

• Will you be retaining your tax residence in Canada?
• Could you possibly be considered a tax resident of the other country under its tax legislation?
• Is there a tax treaty between Canada and the other country (even if you're only planning to stay a few months)?

What about your employer?

• Does your employer have any objections to your working from abroad?
• How will your employer decide to manage the risks?
• Will your employer's tax obligations change?
• Will your employer need to apply for an exemption in the other country to avoid the tax implications?

What are your tax obligations?

• How long can you be away before your departure affects your tax filing in Canada and the other country?
• In which country do you have to file a tax return?
• Where do you pay taxes and source deductions?
• Will there be double taxation?
• If you decide to extend your stay abroad, will that change the tax obligations and planning you had already considered?

The answers to these questions could impact the decision, for both you and your employer. It's important to get the answers to avoid unpleasant surprises.

It's likely that the tax implications will not prevent you from going abroad to work for a while. Nevertheless, being prepared by talking to your employer and consulting an international tax specialist will help you better enjoy your adventure, since you'll know the consequences, wherever you go.