You just landed a dream job offer from a foreign company that allows you to work from home earning top US dollars! The problem is how will you get paid and how will you declare your income to CRA?
Many American companies look north to hire Canadian workers to work remotely for their operations. It could be salespeople selling their products or services in Canada, technicians to service their Canadian installations, or simply Canadian talent to support their business inside the US or internationally. In such cases, a US work visa is not required as the Canadian worker is not relocating to the US, but rather working remotely in Canada – typically out of their home or in a shared executive suite.
But you’re probably wondering “How exactly do we go about hiring a worker in Canada when we don’t have a legal presence there?” The good news is that you can, and this article will explain how.
Become an Independent Contractor
One simple solution is to become an independent contractor and maintain a business to business relationship with your US or international employer. You would have to register a business in Canada and your US or international employer is now legally your client. However, this solution is fraught with potential problems. As you are now a business person and not an employee, you are not covered under your provincial employment standards act, and you would also be subject to all sorts of business taxes like GST/HST, employer source deductions, worker’s compensation insurance (i.e. WorkSafe BC, WCB, WSIB, CNESST, WorkplaceNL). Lastly, you won’t be receiving a T4 from your U.S. or international employer so you can easily file a personal income tax return.
To make matters worse, the Canada Revenue Agency (CRA) doesn’t like Canadian workers misclassified as independent contractors when they behave as employees. Although the CRA normally penalizes the employer for such worker misclassification, they can’t do so when your employer is outside the country. Hence the CRA takes it out on you by deeming you as a “Personal Service Business” (PSB). All of a sudden, you would be disallowed to write off any business expense,s which means all your business revenue becomes taxable as personal income, and you would be forced to back pay all those missed employer payroll taxes, often with penalties.
Work Through a Canadian Professional Employer Organization
Professional Employer Organizations (PEOs) are essentially intermediary employment agencies that act as your official co-employer partner in Canada. The PEO agency becomes your employer of record, and they place or lease you to your employer as their foreign client. As the employer of record for your Canadian worker, your PEO partner would look after all the following:
- Employer payroll tax remittances
- Employee source deductions
- Worker’s compensation insurance
- CPP and EI contributions
- And even issuing you a T4 at the end of the year
For your US or international employer, such an arrangement also provides them with added security knowing that their company is in complete compliance with Canadian tax and labour laws, and their PEO partner can enforce their intellectual property, non-disclosure, and non-solicitation rules. Most PEOs in Canada are also registered employment agencies, as Canadian labour and tax laws have specific regulations allowing employment agencies to hire workers as their agency employees, but placed under the direction and control of their clients. Such specific employment agency laws not only protect placement worker rights, but also client rights in terms of limited employment liability and client protection from worker related fraud, misbehaviour, and enforcement of intellectual property, non-disclosure, and non-solicitation agreements.