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Canadian Resident / UK company - Tax, etc.

Canadian Resident / UK company - Tax, etc.

Old Feb 1st 2021, 3:38 am
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Default Canadian Resident / UK company - Tax, etc.

Hi all,

I have been living in BC since August and am a PR. In two weeks, I will be starting work for a UK company who operations are entirely in the UK. I've worked for them before whilst I was back home and they're happy for me to do so again remotely from Canada.

I will be doing a contract and would usually, in England, do so through an intermediary umbrella company who does all the payroll stuff. The plan is to do this again, but I'm not sure what the implications are in terms of how I receive the money and how I pay what I owe to the Canadian government. Let's assume I'll be resident for at least another 186 days.

Can the UK umbrella company just pay me into a British Bank account and I then pay my income tax, EI, and CPP through my 2021 Canadian tax return? Or is this wishful thinking? Any thoughts or advice about best way of doing this? I do not want to create a company or a be a sole trader as I'd prefer to avoid hassle. Another option might be that the umbrella pays tax etc to HMRC as usual but then I report income and tax paid in UK on my Canadian tax return?

It seems to be difficult to find answers to such questions!

Many thasks
Robert

Ps. When reporting world income, how do I determine the correct rate of exchange to use? The rate at time of reporting, an annual average, or the rate at the time the income was earned?
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Old Feb 1st 2021, 6:20 am
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Default Re: Canadian Resident / UK company - Tax, etc.

I should add that I have read other threads on this topic on the forum although I don't think any are quite in my position.

Also, as things stand, I expect to return to and stay in the UK in future, so im not bothered about whether I build up EI or CPP right now. If my umbrella company can just do all of my taxes and NI etc as usual to HMRC, then that's fine by me providing I don't then get hit hard by the Canadian government once I eventually do my tax return.

Again, any thoughts/advice welcome.

Many thanks
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Old Feb 1st 2021, 3:31 pm
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Default Re: Canadian Resident / UK company - Tax, etc.

Originally Posted by Roberto3000
I should add that I have read other threads on this topic on the forum although I don't think any are quite in my position.

Also, as things stand, I expect to return to and stay in the UK in future, so im not bothered about whether I build up EI or CPP right now. If my umbrella company can just do all of my taxes and NI etc as usual to HMRC, then that's fine by me providing I don't then get hit hard by the Canadian government once I eventually do my tax return.

Again, any thoughts/advice welcome.

Many thanks
You are required to pay taxes on your world income.
Where you live determines where you pay taxes.. so yes, you will pay taxes in Canada if you remain (see the wiki for links to relative legislation).
It would probably be simpler to be self employed (under your own name) - no need to incorporate or form a company - and invoice the UK company monthly.. that also has the benefit that you can claim use of home office expenses (including a percentage of mortgage interest / rent, utilities etc.,) against your tax liabilities. EI is optional for self employed.. CPP isn't.



Last edited by Siouxie; Feb 1st 2021 at 3:36 pm.
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Old Feb 1st 2021, 5:18 pm
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Default Re: Canadian Resident / UK company - Tax, etc.

Originally Posted by Siouxie
You are required to pay taxes on your world income.
Where you live determines where you pay taxes.. so yes, you will pay taxes in Canada if you remain (see the wiki for links to relative legislation).
It would probably be simpler to be self employed (under your own name) - no need to incorporate or form a company - and invoice the UK company monthly.. that also has the benefit that you can claim use of home office expenses (including a percentage of mortgage interest / rent, utilities etc.,) against your tax liabilities. EI is optional for self employed.. CPP isn't.
Thanks for the really helpful response! I don't think the self employed route is an option, also, I can claim expenses through my UK umbrella company. Am I right in thinking that the following are options:

1) be self employed. Do as you have recommended.

2) be paid by my UK employer the gross amount, then report tax, EI, and CPP in Canadian tax return.

3) be paid by my UK employer as though I were at home. They pay NI and tax to HMRC. I then report world income and UK tax paid on Canadian rax return and dont get double taxed.

? I think 3 might be easiest, but what would be pros and cons of these routes?
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Old Feb 1st 2021, 5:34 pm
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Default Re: Canadian Resident / UK company - Tax, etc.

I don’t think 3 is an option - as Siouxie has said, you’ll be tax resident in Canada so shouldn’t be paying tax in the UK (although you can still make voluntary NI contributions).
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Old Feb 1st 2021, 6:46 pm
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Default Re: Canadian Resident / UK company - Tax, etc.

Originally Posted by Roberto3000
Ps. When reporting world income, how do I determine the correct rate of exchange to use? The rate at time of reporting, an annual average, or the rate at the time the income was earned?
I've always used the average for the year, taken from here https://www.bankofcanada.ca/rates/ex...xchange-rates/
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Old Feb 1st 2021, 7:01 pm
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Default Re: Canadian Resident / UK company - Tax, etc.

Originally Posted by christmasoompa
I don’t think 3 is an option - as Siouxie has said, you’ll be tax resident in Canada so shouldn’t be paying tax in the UK (although you can still make voluntary NI contributions).
I thought I saw on another thread that this would be an option. I read elsewhere that I'd get the appropriate tax code from hmrc and then there's a credit for tax paid? Isn't it for hmrc to hand over what is owned to CRA under the treaty?

The other thing to say is that i am planning to return to the Uk this year but don't know when yet. Isn't residency therefore something to be determined in due course as far as this year goes?
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Old Feb 2nd 2021, 1:44 am
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Default Re: Canadian Resident / UK company - Tax, etc.

Any thoughts would be much appreciated... i can't see how the following would be illegal or enforceable in any case. For my part, I just want to live here, work for a company that is happy to hire me whilst I live here, and be within the law in terms of the taxes I pay. Options:
- UK employer pays me into a UK bank account the gross amount, and I report the income on my Canadian tax return for 2021, and would owe tax EI, and CPP.

- UK employer pays me into a UK account and pays the usual taxes and NI contributions to the UK government. I declare world income and taxes paid abroad on my Canadian tax return for 2021.

Are the above options legal? I am not able to do the self employed option. I cannot return to the UK for the time being and don't want to. I have a job opportunity with a UK company that is happy for me to work from here but I doubt they'll be interested in signing up to a load of Canadian labour law requirements since this is a one off for them. I just want to do this job, live here, and pay the correct taxes. Not sure if the two governments, under their treaty, have an arrangement for crediting one another depending on who deserves the money?

This is my predicament. I get the impression the system isn't set up well for this, but also can't see that it could be illegal or enforceable to prevent me working remotely for a UK company.

So, do the options I outlined work?

Worth bearing in mind that, if my residency status is based on the year, that I might only be working in this way, and residing in Canada, for around six months. I will likely take a vacation in Canada after that, and then return home, so my residency status for tax purposes may not be cut n dried. Anyway, this is a side point.
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Old Feb 2nd 2021, 3:54 am
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Default Re: Canadian Resident / UK company - Tax, etc.

Originally Posted by Roberto3000
I thought I saw on another thread that this would be an option. I read elsewhere that I'd get the appropriate tax code from hmrc and then there's a credit for tax paid? Isn't it for hmrc to hand over what is owned to CRA under the treaty?

The other thing to say is that i am planning to return to the Uk this year but don't know when yet. Isn't residency therefore something to be determined in due course as far as this year goes?
You have to fill out a form and obtain confirmation from HMRC showing the taxes you have paid in the UK. They remain IN the UK with HMRC.. you then send the official proof of paying taxes on the money in the UK and they are offset against any taxes due in Canada. It's all explained in our wiki, as mentioned.
https://britishexpats.com/wiki/Tax_Residency-Canada
https://britishexpats.com/wiki/Taxation-Canada

You will probably be classed as resident for tax purposes in Canada since you moved here last August.. the tax year in Canada runs from January to December...
Residency isn't just the physical days you are in Canada - it can also be your links to the country.. i.e. spouse / famiily / property / bank accounts / etc., (see 1st link above) For how to work out tax liabilities for the part tax year in the UK and the part tax year in Canada https://www.canada.ca/en/revenue-age...rants.html#PBC

For the part of the tax year that you were considered a resident of Canada

You have to report your world income. World income is income from all sources both inside and outside Canada earned after becoming a resident of Canada for income tax purposes on your Canadian tax return.
In all honesty, it would be easier for you to work as a freelance self employed contractor working remotely. You don't need to incorporate or start a company - you just need to invoice them each month for your 'labour' and it has tax advantages too - there are a few members who do exactly this, without issues.

Last edited by Siouxie; Feb 2nd 2021 at 4:16 am.
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Old Feb 2nd 2021, 4:06 am
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Default Re: Canadian Resident / UK company - Tax, etc.

Originally Posted by Siouxie
No. You have to obtain a letter from HMRC which shows the taxes you have paid in the UK. They remain IN the UK with HMRC.. you then send the official proof of paying taxes on the money in the UK and they are offset against any taxes due in Canada. It's all explained in our wiki, as mentioned.
https://britishexpats.com/wiki/Tax_Residency-Canada
https://britishexpats.com/wiki/Taxation-Canada

You will probably be classed as resident for tax purposes in Canada since you moved here last August.. the tax year in Canada runs from January to December... see the following link for how to work out tax liabilities for the part tax year in the UK and the part tax year in Canada https://www.canada.ca/en/revenue-age...rants.html#PBC
Ok, thanks pal.

So long story short, my uk employer can just do their usual thing and pay tax and NI to HMRC, then i will just pay any difference (if there is one) to Canada following tax return? It seems a little unfair for the lion's share to go to the UK government in this case, but I don't really know what I can do about it. Unless it is to be paid gross by employer and then pay all to Canada through tax return (presumably tax, EI, and health contributions). Not sure which is the easiest or best option.

I'm a Canadian PR. I'll have worked January for Canadian employer. Start UK job next week.
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Old Feb 2nd 2021, 4:10 am
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Default Re: Canadian Resident / UK company - Tax, etc.

How is it easier for me to invoice them as a freelancer when the umbrella company in UK does all the boring stuff for me? All I'd have to do is complete a canadian tax return.
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Old Feb 2nd 2021, 4:26 am
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Default Re: Canadian Resident / UK company - Tax, etc.

Originally Posted by Roberto3000
Ok, thanks pal.

So long story short, my uk employer can just do their usual thing and pay tax and NI to HMRC, then i will just pay any difference (if there is one) to Canada following tax return? It seems a little unfair for the lion's share to go to the UK government in this case, but I don't really know what I can do about it. Unless it is to be paid gross by employer and then pay all to Canada through tax return (presumably tax, EI, and health contributions). Not sure which is the easiest or best option.

I'm a Canadian PR. I'll have worked January for Canadian employer. Start UK job next week.
I'd suggest getting a cuppa and making a start on reading the links provided... they really will help you to understand the tax regulations in Canada - and the things that you can claim as well, such as GST/HST refunds etc.,
To be paid gross by the employer you would need to be a contractor, invoicing them - otherwise they would be in contravention of the laws in the UK - i.e. you couldn't be an 'employee'. You would pay taxes on the money received, in Canada, plus Canada Pension Plan payments - Employment Insurance is optional and you don't pay health contributions on employment income unless you are an employee, as far as I am aware.

You could be employed by the UK company and then declare your world income, but it's a convoluted way of doing it when you are on salary, plus you miss out on the tax breaks available to you - such as a percentage of your rent / utility bills / phone bills / internet ... and the capital cost of equipment (such as a computer, computer chair, desk, printer, telephone, etc.) There's free software you can use to create your invoices and keep your book-keeping records very simply..
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Old Feb 2nd 2021, 5:52 am
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Default Re: Canadian Resident / UK company - Tax, etc.

Originally Posted by Siouxie
I'd suggest getting a cuppa and making a start on reading the links provided... they really will help you to understand the tax regulations in Canada - and the things that you can claim as well, such as GST/HST refunds etc.,
To be paid gross by the employer you would need to be a contractor, invoicing them - otherwise they would be in contravention of the laws in the UK - i.e. you couldn't be an 'employee'. You would pay taxes on the money received, in Canada, plus Canada Pension Plan payments - Employment Insurance is optional and you don't pay health contributions on employment income unless you are an employee, as far as I am aware.

You could be employed by the UK company and then declare your world income, but it's a convoluted way of doing it when you are on salary, plus you miss out on the tax breaks available to you - such as a percentage of your rent / utility bills / phone bills / internet ... and the capital cost of equipment (such as a computer, computer chair, desk, printer, telephone, etc.) There's free software you can use to create your invoices and keep your book-keeping records very simply..
Haha, thanks mate. I will have a read of the wikis. Thanks for taking the time anyway.

In terms of taking the self employed route, I'm not sure id benefit that much from tax relief owing to the way I live and work. Also, there may be some issues around whether I am deemed to be truly self employed or not - in the UK, this is the old IR35 chestnut. I don't think CRA are keen on people working for a single client for a while, under self employed status. UK umbrella gets around all of this, deals with the boring stuff, and I could claim expenses through them. To your knowledge then - would this route be legally sound and not result in me being over taxed by CRA? (This is just scoping, I wont take your opinion as gospel - just appreciate the point of view as very few, including accountants, seem to understand this situation!)
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Old Feb 2nd 2021, 2:56 pm
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Default Re: Canadian Resident / UK company - Tax, etc.

Originally Posted by Roberto3000
Haha, thanks mate. I will have a read of the wikis. Thanks for taking the time anyway.

In terms of taking the self employed route, I'm not sure id benefit that much from tax relief owing to the way I live and work. Also, there may be some issues around whether I am deemed to be truly self employed or not - in the UK, this is the old IR35 chestnut. I don't think CRA are keen on people working for a single client for a while, under self employed status. UK umbrella gets around all of this, deals with the boring stuff, and I could claim expenses through them. To your knowledge then - would this route be legally sound and not result in me being over taxed by CRA? (This is just scoping, I wont take your opinion as gospel - just appreciate the point of view as very few, including accountants, seem to understand this situation!)
You wouldn't be able to claim expenses for tax purposes in Canada through an umbrella company in the UK. You could claim expenses as self employed / business based in Canada.
Good luck.
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Old Feb 2nd 2021, 3:58 pm
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Default Re: Canadian Resident / UK company - Tax, etc.

Hi Roberto3000, I asked similar questions to you not long ago and I am still working my way through all the rules and so on. I hope I can help somehow.

I think there is nothing illegal in you just reporting your total earnings from the UK umbrella company as world income. Total tax owed on your world income will be calculated. You will get deduction for whatever tax the umbrella already paid to HMRC on your behalf and you will pay whatever is left (CAD tax owed minus HMRC tax already paid). The downside of this is you might end up paying more tax than you would in the UK but that's fine if you dont mind.

A way to maximise tax relief is to set up as self employed in Canada and invoice the UK company directly i.e no umbrella involvement. The UK company might not want to do this though. My understanding is that in this case, you wouldn't be subject to IR35 since you are operating from Canada. Also, the company wont need to pay VAT and you would also charge HST/GST at 0 rate since you are working as an international consultant/contractor. If you do it this way, you can claim self employed expenses in Canada and decide not to contribute to EI. CPP is compulsory. Asides from amount saved in expenses, your tax rate won.t be that different to that of an employed person. Unlike in UK, the tax rate difference between self employed and employed in Canada isn't so great.

There is no option of only paying tax in UK and not owing any thing in Canada.

My own case is complicated simply because of the issue highlighted in the 3rd paragraph. I operate through a UK LTD at the moment and I dont think my agent would want to work with a non uk company. This means I would pay corp tax and income tax in UK and then have to pay tax in CAD again.
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