How can an Umbrella Company Help with Contracting in Canada?
Once you have decided to look for contracting clients in Canada, the first step is to understand both tax and immigration compliance.
Most freelance workers aren’t experts who successfully tackle these issues all on their own. There are companies who specialise in helping workers make the most out of their contracts.
They’re called Umbrella Companies (or, contractor management companies).
Basically, an Umbrella Company acts as your full-time employer, even though you maintain your independence as a contractor. They collect and filter payments from your clients, withholding the necessary social security and fees. You send them your timesheets, and they send you payments.
Because they act as your “employer,’ they can sponsor you and provide a single work permit for multiple contracts in Canada. Even better, most are experts in Canadian and expat tax law, meaning they’ll also help you optimise your earnings in Canada.
Although the Umbrella Company is technically your “employer,” you’re essentially freeing yourself to work even more independently. You still dictate your contracts, your hours and your schedule. The umbrella company simply handles the time-consuming admin and immigration issues, allowing you to focus on your new contract.
Can I Organise My Taxes and Work Permit Myself?
Generally, you need to have an employer sponsor in order to secure the appropriate work permit and work visa for contracting in Canada.
If you’re working as a Canada independent contractor, it can be difficult to find clients willing to sponsor you. Moreover, even if your client can do this, you’ll need a new sponsor each time you decide to take on a new contract. Of course, every new sponsor will mean more paperwork.
Also, are you familiar with the intricacies of the tax system in Canada, as well as your own country’s laws on overseas earnings?
However, if you’re like the rest of us, figuring out (much less reducing) your tax liability in Canada and your home country can seem like full-time work in itself.
A Contractor’s Guide to Taxes in Canada
One of the most consistently challenging aspects of contracting in Canada is complying with the country’s tax system. As well as paying tax in Canada, you might also still be eligible to pay some tax in your home country, and understanding the legislation behind this can be a challenge.
How do I calculate my taxable income in Canada
If you’re working in Canada under a permanent contract, many employers will handle your tax under the PAYE (pay-as-you-earn) system. This means that they calculate and process your taxes in Canada for you and then send you a net wage.
Your income tax, public health insurance, social security and other deductions will all be covered by this payment. This is the easiest way to handle your income tax in Canada, but contractors may not be offered this service because of their short stay with each employer.
Anybody who can’t pay their tax in Canada through PAYE is left with the prospect doing everything themselves. So, how does an independent contractor pay taxes in Canada?
Do you know much about Canadian Tax Law? Do you realise that contract workers in Ontario may pay a different tax rate than those contracting in Alberta?
Does Canada have a tax treaty with your home country? You will need to find out or find someone who can help! Income tax in Canada can range from 15 to 33 percent (not including provincial/territorial taxes), and you need to be sure you are placed in the correct tax brackets.
Tax Filing as a Contractor in Canada
| When Do You Need to Lodge Your Tax Return? | 30 April |
| Can you file it online? | 30 April (or the next business day if 30 April falls on a weekend); Extended to 15 June if the individual (or individual’s spouse) carried on an incorporated business |
How to File Taxes in Canada as a Contractor
Step 1: Collect all your information and supporting documents that show your income, such as your original T4 slip. Your employer should have given it to you before the end of February.
Register for ‘My Account’ here(link is external), to access the secure ‘Auto-fill my return’ service. You can use tax preparation software to automatically fill in parts of your return with information that the Canada Revenue Agency (CRA) has on file.
Step 2: Use a NETFILE-certified software product to fill out your tax return. You can access a list of certified software here(link is external). Some of these products are free, for example StudioTax. With a NETFILE-certified software product, there is no need to mail a paper return or upload ‘.tax’ files.
Step 3: Make sure your information is up to date. If there has been a significant change in your life e.g. you had a child, tell the CRA as soon as possible so that you continue to get your benefits on time.
Step 4: Report the income amounts you receive, from both outside and within Canada. Your forms should have instructions on where to report an amount. Find out which deductions, tax credits and expenses you can claim.
Step 5: File your tax return online using NETFILE. NETFILE allows you to file your income tax and benefit return electronically using a tax preparation software or web tax application. With NETFILE, you can get your refund in as little as 8 days, if you choose direct deposit.
Only one combined return needs to be filed for federal and provincial/territorial taxes (as the federal government collects taxes on behalf of all provinces and territories). Only the province of Quebec requires filing a separate tax return.
Step 6: Keep your supporting documents for at least 6 years.
Income tax is generally paid to one of the provinces or territories based on the individual’s residency on the last day of the year. Provincial/Territorial tax is calculated by applying their tax rates to taxable income.
Income tax is withheld from salaries. Individuals are required to pay quarterly instalments if their tax payable exceeds amounts withheld at source by more than CAD3,000 (CAD1,800 for Quebec residents) in both the current and either of the 2 previous years.
Tax Figures in Canada
| Currency | Canadian Dollar (CAD) | ||||||||||||
| Tax-free Threshold in Canada | None | ||||||||||||
| Income Tax Rates |
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| Notes |
Tax Credits and Deductibles
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Tax Residency in Canada
When do you become a tax resident in Canada
You become a tax resident in Canada when:
You are generally considered a tax resident in Canada when:
- You maintain a fixed abode for yourself and your family in Canada; or
- You have social and business ties with Canada such as memberships in clubs and religious organisations, driver’s licences, vehicle registration, and medical insurance coverage; or
- You are temporarily resident in Canada for 183 days or more and are therefore deemed to be resident in Canada for that entire year.
All factors are taken into account in determining an individual’s residence.
If an individual is considered to be a resident of both Canada and another country, tax treaties often provide residency ‘tie-breaker’ rules that override the general residency tests applied under Canadian domestic law.
Under Canadian law and the residency provisions of most tax treaties, an individual is considered resident in the jurisdiction to which the individual has closer personal and economic ties.
Does the 183 day rule apply in Canada
Yes
Am I taxed on my global income in Canada
Yes, tax residents are taxed on global income.
Can you set up your own Limited Company in Canada?
| How long does it take to set up | 1.5 days |
| How much does it cost | CAD200 |
| Is it easy? | Starting a Business Rank: 2/190 |
Tax Calculator in Canada
If you are a contractor and want a calculation on your tax and net retention in Canada, we can supply it to you free of charge.
Using an Umbrella Company for Income Tax in Canada
Contractors in Canada are faced with masses of paperwork and numerous wasted hours filing a tax return unless they find an alternative option.
Can I be an employee and a contractor at the same time in Canada?
Yes you can! A Canadian umbrella company can act as your employer during your stay in the country whilst still allowing you the freedom of a contractor. The only difference is that you submit your timesheets to them; they’ll calculate and pay your taxes as you earn, and then you receive a net wage (as well as documentation for your records).
The companies are experts in Canadian taxation, and they’ll ensure that you keep the largest proportion of your earnings whilst complying with local laws. They can deal with any issues with the Canadian tax office or tax department directly including processing your tax refund if you are eligible.
How We Can Help You with Tax in Canada
We work with numerous umbrella companies in Canada, many of whom are experts in tax and immigration laws. If you have any questions about tax in Canada, we’ll get the answers from them directly so you can rest assured you’ll be getting accurate information. We have comprehensive knowledge of the different services they provide, and can help you find the right company to handle your income tax.
We help oil and gas workers, software developers, IT project managers, testers, business analysts and telecommunications contractors, to get tax efficient payments and sponsorship for their Canadian work permit.
Our advice is 100 percent free, and comes with no obligations. You will be paying taxes in Canada but without the overhead of directly dealing with the Canadian tax authorities. Get in touch with us today for some reliable advice on tax in Canada!
What are the tax implications for a Canadian permanent resident contracting for a US company while living in Canada?
As a Canadian permanent resident you will of course pay Canadian taxes like any citizen. But the real issue is US taxes. If you are a US citizen or permanent resident, you also have US tax liability. You would have to look to the double taxation treaty between the US and Canada for allowed credits and offsets.
The fact that your client is US based has less effect than your own residency. But if you have ties to the US, the US company will have to report it as 1099 income or employee income.
A Contractor’s Guide to Work Permits in Canada
Immigration is one of the primary concerns for any contractor hoping to start working in Canada. Permanent employees will find it easy to get their Canadian work permit because they’ll receive “sponsorship” for their entire stay from their prospective employer.
The Canadian work permit, issued under the Temporary Foreign Worker Program (TFWP) by the Immigration, Refugees and Citizenship Canada (IRCC), is dependent on this sponsorship because it confirms that you’ll be earning money during your stay in the country.
Contracting in Canada is more difficult because the work permit is tied to one employer, so you have to change it to suit each new contract. Thankfully, umbrella companies provide a convenient and effective solution to this issue.
Work Permit Processing Time
4-6 weeks
Can Work Permit be Processed in Country?
Cannot be processed in-country (host country).
How Does an Umbrella Company Work?
Most people want to do their work, earn their money and enjoy their spare time without taking on loads of administrative tasks in a new country. That is why an umbrella company can help.
When you’re working through an umbrella company, you’ll essentially be outsourcing the admin and tax issues to specialists.
While the umbrella company will charge a fee, you’ll likely end up saving more money in the long run: you’ll be able to focus on your work, expertly reduce your tax liability, and comply with all laws and regulations in Canada (which means avoiding fees, fines, or even worse penalties).
How Can We Help You?
Set up as an independent contractor in Canada today
There’s a huge variety of umbrella companies with different specialities and advantages in Canada. How do you find the right one for your circumstances?
We work closely with umbrella companies all throughout Canada and match contractors with the right company for them. If you’ve already secured a contract in Canada, we can help you find your best match (for free). Or, we can simply give you feedback on your situation. You will find some questions below on contracting in Canada.
Popular questions about Contracting in Canada
Can an American contractor work in Canada?
Yes, but the contractor will need to either work as a Canadian employee or contractor. They can’t rely on their US contracting status, as it does not automatically transfer.
How do contractors get paid in Canada?
If they are hired as employees, they will be issued a payslip under the PAYE system. As an independent contractor, they will have to set up their business for payment or go through an umbrella company.
What type of contracts are there in Canada?
For independent contractors, a contract can either be fixed for a period of time, or open ended at an agreed rate. A contract might also be for a project until completion. All of this is negotiable with the client. But you won’t have any termination protection or severance like an employee.
How to register as an independent contractor in Canada? Does an independent contractor need a business licence in Canada?
You must register your business, name and tax ID number. You will also need to get any business licences or permits for the industry that covers your profession.
How to start an independent contractor business in Canada?
If you are a foreigner, you will need a work permit and all required registrations including a tax ID number. You might be able to secure a client that will sponsor your permit, or you can use an umbrella company in Canada for sponsorship.
Can American citizens work in Canada as independent contractors and or as employees of Canadian corporations?
A US citizen can work as either an employee or contractor for a Canadian company. This will depend on the preferences of the company, and ease of hiring. As an employee they would sponsor your work permit, but as a contractor you would have to do this on your own. This is where an umbrella company can be helpful as both visa sponsor and payment facilitator.
Generally speaking, are contract employees paid more or less than permanent employees?
Sometimes a contract employee (or contractor) will be paid more since their tenure is limited, and they won’t receive equivalent benefits. This all depends on how high-demand their skill is to the company.
Can I as a foreigner work for a Canadian company from abroad?
Yes and it’s actually much simpler. The company would become your remote client, and there would be no tax implications in Canada or any other compliance concerns. You can literally work for remote clients from anywhere in the world, including your home country.
What is the best way for a US company to pay a remote Canadian consultant?
If the US company wants to have some assurance of performance before payment is made, they can use an umbrella company. The umbrella company is a third party intermediary to the relationship and confirms performance with the client before remitting payment.
What is it like to live and work in Canada?
What is the weather like in Canada? Is there a big difference in temperature between Vancouver and Montreal?
Despite its northern location, Canada is not freezing cold all the time. It will depend on the season and your location. But, the temperature difference between Vancouver and Montreal can be quite significant.
During the winter months, Vancouver tends to be milder than Montreal, with less snow and generally higher temperatures. In contrast, Montreal’s winters can be quite cold and snowy due to its inland location.
In the summer, Vancouver’s temperatures are usually cooler compared to Montreal’s, where it can get very warm and humid. In other words, Montreal has more extreme temperature and weather differences than Vancouver.
Do I need to speak French to work in Montreal?
Montreal is a bilingual city, with both French and English used. A large portion of the population does speak French.
Socially, it would be good to have some French and for work it’s going to depend on the job. Customer facing positions would require French speaking ability, and it’s common for professional occupations to use both French and English.
But technical roles, or multinational companies don’t require it for many positions, although it would make it easier for you.
Are rental prices basically the same in all the major cities in Canada?
Rental prices do differ between cities. For example, Vancouver and Toronto have higher rental costs due to low supply and a strong job market. Montreal is known for having lower rental prices, but you also have to deal with the frigid winters.
Are there any big cultural differences in Canada from the US?
There are a few that stand out:
Multiculturalism and Diversity: Canada prides itself on its multicultural identity and promotes diversity. The country has a strong emphasis on accommodating and celebrating various cultural backgrounds. In the US, this will depend on the region.
Healthcare: One major difference is the healthcare system. Canada has a publicly funded healthcare system, which means that essential medical services are provided to citizens and permanent residents at little to no direct cost. The US is primarily a private insurance system.
Punctuality and Politeness: Canadians are often stereotyped as being polite and punctual, and while this may not apply to everyone, it’s a cultural aspect that can differ from the U.S.
How easy is it to set up a Canadian bank account for an expat?
It may be easier in Canada to set up an account than in other countries. If you have a job and work permit, there should not be any problems. You may even be able to set up an account online prior to arrival. There are no national rules or policies on expat banking, but each institution will have its own criteria.
