Updated on January 23, 2024

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.

A tax update is planned on U.S. GILTI tax system. Here’s what U.S. shareholders of a Canadian corporation need to know.

Joe Biden’s arrival in the White House may increase the tax burden on U.S. shareholders of Canadian corporations that are subject to the U.S. GILTI (global intangible low-taxed income) tax system.

If the new U.S. President’s tax proposals are implemented, the U.S. corporate tax rate will increase from 21% to 28% and the GILTI tax rules will be tightened.

For U.S. shareholders of a U.S.-controlled Canadian corporation (which includes certain Canadian entrepreneurs with dual citizenship), these changes could restrict access to a new tax relief measure introduced in the summer of 2020 called the GILTI high-tax exclusion (GILTI HTE).

What is GILTI?

The GILTI tax regime was introduced by the Trump administration as part of the December 2017 tax reform.
Under the GILTI plan, a U.S. shareholder who owns at least 10% (by number of votes or by share value) of a non-U.S. corporation controlled (more than 50%, as defined) by Americans may be required to include its share of such a corporation’s net income in its gross income. (Note that net income is calculated according to the special rules of the GILTI plan).

This share is equal to the U.S. shareholder’s share of the foreign corporation’s net income based on the U.S. shareholder’s ownership percentage less 10% of the value of certain tangible assets of the foreign corporation (pro-rated based on the U.S. shareholder’s ownership percentage).

The amount so determined is included in the U.S. shareholder’s gross income even if the foreign corporation has not made any distributions.

This additional income is subject to U.S. personal income tax (currently up to 37%, but which Joe Biden wants to increase to 39.6%). A foreign tax credit is not available, since this income is not subject to personal income tax on dividends in the foreign country.

New tax relief

Following the enactment of the GILTI HTE measure, a U.S. shareholder of a Canadian corporation can now claim a high foreign tax exception if the Canadian corporation is subject to an effective tax rate that exceeds 90% of the U.S. corporate tax rate.

Currently, this rate is 21%. This means that if the effective Canadian tax rate is above 18.9% (as is generally the case), a U.S. shareholder subject to GILTI tax can benefit from GILTI HTE. Therefore, the U.S. shareholder will not have to include the additional income in its taxable income under the GILTI Plan.

However, be careful, as the measure refers to the concept of effective tax rate. The effective tax rate could be less than 18.9% for certain Canadian corporations, including those that have a high refundable dividend tax (RDT) for the year or those that benefit from certain tax credits, such as research and development related credits.

Access restricted to new measure

In his tax reform package, President Biden proposes to increase the U.S. corporate tax rate to 28% and to double the GILTI tax rate from 10.5% to 21%.

As a result, if such measures are implemented, the effective Canadian tax rate would have to be higher than 25.2% (90% of 28%) instead of 18.9% (90% of 21%) in order to benefit from GILTI HTE. With Democrats having a majority in both houses, it is possible that these tax changes could be passed within two years, before the mid-term elections.

It should be noted that Biden’s tax changes would also restrict access to another means of eliminating the GILTI tax. This alternative, which is more complex to implement than the GILTI HTE, is the tax election under section 962 of the Internal Revenue Code (IRC). With this alternative, to eliminate the GILTI tax, the effective foreign tax rate would have to be higher than 26.25%, instead of the current threshold of 13.125%.

In conclusion, the GILTI tax may be an additional tax burden for our Canadian entrepreneurs with dual citizenship, especially if the measures proposed by Biden are adopted. For this reason, it is important to consult a cross-border tax expert who can assess the present and future risks of the GILTI tax system and suggest solutions to mitigate the impact of this additional tax.

Our team of international tax experts offers personalized advice based on the specific considerations of each case. Contact us to speak with one of our specialists.

Raymond Chabot Grant Thornton has published the 2020 French version of IFRS Example Consolidated Financial Statements 2020, a publication by Grant Thornton International IFRS team entitled États financiers consolidés types conformes aux IFRS – 2020 (hereinafter the “Example consolidated financial statements”).

The IFRS Example consolidated financial statements 2020 have been updated to reflect changes in IFRS that are effective for the year ending December 31, 2020. No account has been taken of any new developments published after September 30, 2020.

In addition, given that the global COVID-19 pandemic has impacted virtually every reporting entity that exists, the 2020 version comments on information that might be relevant to disclose around the COVID-19 in the financial statements.

The Example consolidated financial statements are based on the activities and results of the illustrative corporation and its subsidiaries – a fictional consulting, service and retail entity – which have been preparing IFRS financial statements for several years. The form and content of IFRS financial statements depend on the activities and transactions of each reporting entity.

The Grant Thornton International IFRS team’s objective in preparing the Example consolidated financial statements is to illustrate one possible approach to financial reporting by an entity engaging in transactions that are typical across a range of non-specialist sectors. However, as with any example, this illustration does not consider every possible transaction and, therefore, cannot be regarded as comprehensive.

Management, as defined by the International Accounting Standards Board (IASB), is ultimately responsible for the fair presentation of financial statements and, therefore, may find other more appropriate approaches for its specific circumstances.