IG Wealth Management's director of Tax & Estate Planning explains tax, coverage, and other pitfalls clients should watch out for
Across sectors and industries, the arrival of COVID-19 delivered a jolt that short-circuited many preconceived notions of office life. As companies accelerated their adoption of remote work tools and the requirement to show up at the office was waived, white-collar workers on all rungs of the organizational ladder have embraced the idea of telecommuting.
For many, that has meant working from home. But a growing number of Canadians are starting to think more adventurously.
“I think some people are seeing this as an opportunity to work from another province or country,” said Mariska Loeppky, CPA and director of Tax & Estate Planning at IG Wealth Management.
The reasons for people to consider work-from-anywhere setups are varied and personal. Some may simply want the change of pace or scenery that comes with going to another province or country. Others may travel to another jurisdiction in order to spend more time with loved ones, or be available to help and care for them as needed. There’s also the prospect of moving to a community where living costs are lower.
But according to Loeppky, Canadians should weigh several considerations before pushing through with a life-changing move. First among them, she said, is to ask whether their employer has any restrictions in place.
“Many employers are developing policies as to whether an employee can work from anywhere,” she said. “They may, for example, need an employee to report to work regularly, or they may feel the uncertainty surrounding travel and quarantine requirements would risk the employee’s ability to do their work.”
Taxes are another consideration. Within Canada, a company is taxed based on where they have a permanent establishment, which is defined in part by the location of an employee authorized to sign contracts on its behalf; a Manitoba-based company, for example, may unexpectedly face new tax obligations in Ontario if it were to let one such worker operate from there. If an employee is working from another country, it could also impact the employer’s obligation to withhold taxes at source and remit them to the foreign government.
In the case of advisors, there’s also the added challenge of licensing. A person may be licensed to do a certain amount or type of work within a particular province, but going to another jurisdiction within or outside Canada means finding out whether they’ll need to apply for a work permit or visa.
“Employers may also be worried about implications related to health and safety, whether their employment benefits extend there, and what employment standards laws apply in a certain location,” Loeppky added.
Even after they get their firm’s blessing to work from another jurisdiction, workers looking to work outside their employer’s provincial location must consider whether it makes sense within their own financial plan. The most immediate consideration arguably centres around their income tax obligations, which for Canadian residents is defined by numerous factors including their place of residence as of December 31st of a given year.
“The Canada Revenue Agency (CRA) also looks at a number of other factors such as the location of the individual’s spouse and dependents, where their driver’s license is registered, and where they have bank accounts,” Loeppky said.
Based on the CRA’s determination, a move outside one’s home province can have a substantial impact. Being in a higher-tax jurisdiction can lead to an individual having an additional obligation to the taxman in April, since they didn’t get enough withheld from their paycheque based on their previous lower tax rate; conversely, going to a lower-tax area could set up a positive surprise via a larger-than-expected refund.
It can get even more complicated for people who spend time abroad. According to Loeppky, those going to another country that has a tax treaty with Canada are generally able to avoid double taxation; the country where the income is sourced gets to collect tax first, and the higher tax rate between the two countries would apply. But those who spend more than 122 days in the U.S. for three straight years, or 183 days in the U.S. in a given year, may be required to report their worldwide income on a U.S. tax return, as well as file complex returns to report their non-U.S. investments.
“They also have to consider whether their existing personal health coverage extends to the other province or country they want to move to,” she said. “If their coverage in that outside region falls short, it becomes a question of what they need to be properly protected in the event of illness or worse.”
According to Loeppky, more IG Wealth Management clients than ever are thinking about uprooting themselves and possibly starting afresh elsewhere. With the arrival of the pandemic, people are changing their outlook and re-evaluating their wishes and priorities. While she fully understands and sympathizes with people’s need to pursue what matters to them, she emphasized that they should arrive at the decision with eyes open.
“Some people change their minds after becoming aware of the challenges, but we’ve found a lot of clients are deciding that now’s the right time or that it’s so important to them,” she said. “If it’s really their heart’s desire, we want to help them understand both the possibilities and the implications so that they aren’t caught off-guard later.”