Canada is emerging as a country with numerous work opportunities in many different professions. This is especially true for contractors who are willing to relocate and offer their services to Canadian clients. Given Canada’s proximity to the US, widely spoken English and stable government, it can be a great destination for international contractors.
This guide will explain how to get paid, meet social security obligations and determine tax residency, to help you as you set up your contracts in Canada. We also explain the solutions for overcoming any challenge that you might face if Canada is a new work location for you.
Your Options for Getting Paid as a Contractor in Canada
The first thing to think about is how you will be paid as a contractor in Canada. One of the risks of working as a contractor is that of misclassification, which means the Canadian authorities will really view you as an employee of your client. Then, your client could be on the hook for past due employer contributions.
To avoid this, you will need to set up your contracts and payment methods to reflect your self-employed status, so that you don’t appear to be an actual employee. This means regular invoicing under your business name and arranging payment to a related account, either in your home country or in Canada. The other issue to think about is whether you are getting paid in Canadian dollars or another currency, since exchange rates could affect your net profits.
You also have the option of working through a Canadian umbrella company that would essentially handle all of your payment, tax and social contributions, just as though you were an employee. This can be a real benefit for contractors who are new to Canada, and unfamiliar with all of the business laws and regulations.
Social Security in Canada
Because you are working in Canada that means that you will also have to pay social security just like any Canadian business. The good news is that many countries have tax treaties with Canada that may permit you an exemption if you are paying social security at home.
For example, if you are a contractor from the US working in Canada, you still have to pay US self-employment taxes on your income, which cover social security. You could get a credit in Canada for those amounts and avoid double payment.
Do You Need a Visa to Work in Canada?
Like most countries, if you work in Canada longer than a month or two, you will need a work visa. Self-employed contractors in Canada can be issued a work permit, depending on their home country, as some only allow company specific permits while others are ‘open’. In most cases, those are temporary work permits for the duration of your project, unless you are applying for permanent residency.
There is involved process to getting a work permit as a self-employed contractor, and it may be easier to work through an umbrella company and have them sponsor the work permit for you.
Does a US citizen need a visa to work in Canada?
Because of NAFTA it is a bit easier for US citizens to get a work permit in Canada, but they cant avoid the process altogether. There is a business visitor program under NAFTA for stays of up to six months, but you have to demonstrate that you are not entering the Canadian labor market and most of your income originates outside of Canada. That may be tough to qualify for if you are working for a Canadian company even as a contractor.
Are You a Tax Resident in Canada?
Canada has a test for tax residency that is similar to many countries, which is that 183 days or more per year makes you a tax resident. It is likely your home country has a tax treaty with Canada to prevent double taxation if you are also paying taxes at home. In that case, you are a “deemed non-resident.”
Tax residency is also different from the rules for obtaining permanent resident visas, as the first is only a definition for tax purposes and the visas are immigration related.
Hi, I'm Campbell and I'm the General Manager of Contractor Taxation! If you're looking at contracting in Canada and are looking for a way to maximise your take home pay with minimum hassle, drop me a message. I'll personally ensure that you're referred to an umbrella company who can best address your needs.
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