mushboom

Hi,

I'm trying to figure out how the tax treaty between the UK and Canada works and so far have gotten conflicting information from the CRA. Can anyone help with the limitations/legality/requirements for living and working in Canada while being employed by a British company and getting paid in UK funds?

Thanks in advance!

Aviator

If you are a tax resident of Canada (not the same as immigration status), you report world income. FX is converted to CAD for reporting. Currency gains are a separate issue.

If you are taxed in the UK for some reason, provide a certificate of tax paid and claim a foreign tax credit on your Canadian tax return. You pay any difference if there is any.

Souvy

Where are you resident? Do you pay any tax in the UK or do you pay your taxes in Canada? You won't pay twice.

I've been in this situation for years. It can be a bit of a mare.

Snowy560

I've been in this situation for several years.
I just give the (Canadian) tax accountant the figures plus proof of any tax paid if there is any and the CRA tax return just gets filed. Mine isn't huge amounts and I work on a contract for services basis. I did have to sign that I would report money earnt to the CRA (and I do). In addition, as Aviator says, if you are Resident in Canada, you have to report worldwide income (and assets if you have $100,000+). Income can include stuff like share divis, interest on savings account etc.

S

Souvy

Also worth bearing in mind that the CRA is very strict on foreign tax credits these days. I have been audited several times just on this.

mushboom

OK. The person working for a UK company is a permanent resident of Canada. We're currently in the UK but moving next year. He is able to keep working for his UK company from Canada, but we're worried about not paying enough tax/ending up with a giant tax bill come April since there is quite a big difference between the Canada and UK tax brackets.

So he would claim international income and pay British income tax, coming off his UK pay, and then pay any difference to Canada come tax time?

Aviator

Depends on tax residency, but sound like he would be a Canadian tax resident. Either way, he would end up paying the same in Canada, whether he pays UK tax and claims a foreign tax credit. Claiming a foreign tax credit is also not guaranteed CRA will accept it either. If it is done right, likley be OK. If he paid more tax in the UK than he would Canada, will not get any back or be able to claim any extra in Canada.

How much is due in total would depend on income. Best to consult an accountant when in Canada. If the funds are exchanged right away, FX is the rate he received. If he hold the funds for a better rate after receipt, there could be capital gains on the currency gain as well.

Snowy560

You could use a Canadian to ensure you get it right. At least for the first year. We use one every year because I just don't want the hassle and I have a few small contracts.

The first couple of years I was paying UK tax and just submitted the relevant HMRC paperwork to the Canadian accountant. Then they put me on a contract for services which means the tax is totally my responsibility. I have a couple of other Canadian contract for services so I suppose I am used to just paying the tax at the time I do the Canadian tax return.

S

Shirtback

Will the person in question be an employee of the UK company, or an independent contractor? That would be important to find out/work out ahead of time.

There are a fair few of us about these parts (in addition to those who have already posted) who live here & are paid from elsewhere/have income from elsewhere.

I've found that independent contractor/self employed works best *for me*.
CRA has various basic tax calculators available online.

Siouxie

+1

Plus being an independant, self employed contractor you can offset some of the expenses against taxes in Canada.

https://www.thebalance.com/home-busi...ctions-4000322
Are you self-employed? | The tax planning guide 2015-2016

bats

It probably doesn't apply to larger amounts but for my pension I filled out a HMRC form which I then sent to Canadian tax people, they filled out the section saying I was a tax resident of Canada this form went to HMRC who changed my UK tax code so i pay nothing there and they refunded monies paid.

Shirtback

I was hoping you'd chip in .

Aviator

But one does not get to choose, depends if you meet the criteria http://www.cra-arc.gc.ca/E/pub/tg/rc4110/rc4110-16e.pdf

Shirtback

Which is why I attempted to stress that it works *for me*.

That's a good link.

mushboom

Thank you all! This is very helpful. The CRA just kept rattling on about maybe not getting tax credits but wouldn't answer how much tax we would need to pay or where it would be paid to.

I'm not sure if he will be an independent contractor or remain a full time salaried employee - we are trying to work out the best option so the links supplied are very helpful. He will also get a salary and commission, so I believe the commission is claimed as income, just in a different part of the form?

Definitely going to get an accountant to sort it out for the first year or two but want to know what we should expect before going ahead with it.