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. This will help you as you set up your contracts while contracting 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 while contracting in Canada. One of the risks of working as a contractor is that misclassification. This means the Canadian authorities will view you as an employee of your client. Then, your client could be on the hook for past employer contributions.
To avoid this, you will need to set up your contracts and payment methods to reflect your self-employed status. This is so that you don’t appear to be an actual employee. What this means for you is regular invoicing under your business name and arranging payment to a related account. This could be either in your home country or in Canada. Exchange rates could affect your net profits. Thus, you’ll have to think about getting paid in Canadian dollars or another currency.
You also have the option of working through a Canadian umbrella company that would essentially handle all of your payment, tax and social contributions. 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. This may permit you an exemption if you are paying social security at home.
For example, if you are a contractor from the US contracting in Canada, you still have to pay US self-employment taxes on your income, which covers 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. There is an exception, however, if you are applying for permanent residency.
There is an 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 can’t avoid the process altogether. There is a business visitor program under NAFTA for stays of up to six months. However, you have to demonstrate that you are not entering the Canadian labour 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. Tax residency is only a definition for tax purposes and the visas are immigration-related.