Managing the tax impact of cross-border remote work arrangements: A Canadian perspective

Kim Maguire, Ilana Ludwin

Sep 2, 2022

With cross-border remote work becoming increasingly popular, employers need to consider the tax implications of such arrangements. In their article published in the Tax Management International Journal, Osler lawyers Kim Maguire and Ilana Ludwin discuss three scenarios where tax issues may arise in relation to work-from-home.

The first scenario involves the virtual assignment of a Canadian employee to a foreign employer. A key issue here is whether the employee’s location will result in the employer being taxable in the employee’s jurisdiction. It is essential for employers to carefully consider the working conditions, role and function of the Canadian employee, and to just as carefully monitor and ensure compliance by the Canadian employee with any guidelines established around their work for the foreign employer.

Under the second scenario, a non-resident employee of a foreign employer requests to work in Canada. In this case, the foreign employer cannot rely on its Canadian affiliate to handle payroll matters. The foreign employer may instead compel the employee to assume their Canadian payroll obligations by requiring the foreign employee to incorporate and operate as a personal services business. This arrangement can benefit the foreign employer because the employer will be generally relieved of any Canadian payroll obligations.

With the third scenario, the Canadian employee of a Canadian employer works remotely for their Canadian employer from outside of Canada. In this case, the Canadian employer will likely need to engage a foreign tax advisor to determine whether the employee’s presence in the foreign country exposes the Canadian employer to any foreign tax, reporting or payroll requirements. Even if the employee is not subject to foreign income tax because of a tax treaty, remuneration paid to the employee may still be subject to foreign payroll withholding requirements.

DOWNLOAD PDF: Managing the tax impact of cross-border remote work arrangements: A Canadian perspective originally published in Bloomberg Tax (Available in English only)