Dear Lifehacker, I am heading to Canada for a working holiday and I might end up staying there long term. I’ve been working as a software developer for a long time and love the company I work for. We have talked about me perhaps working remotely in a contractor role and I’m interested in this possibility. If this does come to pass, what legal and tax issues should I be aware of, working from another country and being paid by an Australian company. Thanks, Bound for Canada
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Dear Bound for Canada,
I asked the exact same questions when I moved to Canada six months ago and I'm still looking for definitive answers. Fortunately, you don't have to do it the hard way like I did, because I've detailed the whole process in a series of posts about working and living overseas. Set aside an hour of your day to carefully read these articles — they will give you a good idea of what you can expect.
Your situation is complicated by the fact that you'll be living in one country while technically working in another. Your legal and tax considerations will depend on several factors, including the length of time you're away, your residency status in either country, if you own property, if you have a spouse or dependent children, the nature of your employment and so on.
Since you're asking specifically about the legal and financial side of things, we'll focus on that in this post. Remember, only a lawyer and an accountant can give you reliable answers that are specific to your situation, so be mindful that this is mostly deduced from my own experience.
1. Find a lawyer and an accountant who know what they're talking about
As obvious as it sounds, this is the hardest part. You don't want just any lawyer or accountant. You need to find specialists who are trained in the laws of the country you live in now and the country you hope to live in later. That's incredibly difficult. For instance, how many lawyers out there can confidently advise you on your legal duty as a departing Australian as well as your federal and provincial obligations in Canada? Be upfront about your situation and ask all the necessary questions. If it turns out your lawyer can't help you for whatever reason, be sure to ask for the name of someone who may be better suited to answering your questions.
Similarly, your accountant should be able to tell you when, how much and in which country you are required to pay tax. Is your Australian employer willing to pay your wages into your overseas bank account? Is it in your best interest to be paid in Canadian or Australian dollars? What happens to your HECS debt while you're away? Some other questions you need to ask include:
• Will I become a non-resident for tax purposes? • In which country will I be required to pay tax in? • What can I do to reduce my tax? • How can I make sure that I don’t get double-taxed? • Can I file an early tax return? • Am I eligible for income averaging?
My Australian accountant said one thing, while my Canadian accountant said something totally different, and another turned me away because he simply didn't know what to do. (If you find someone reliable, please let me know!) If nothing else, at least speak to an accountant who specialises in your line of work. Every occupation has its own tax concessions or exemptions that grandma's semi-retired accountant friend won't necessarily know about. If your status switches from full-time employee to contractor, you could be eligible for an early tax return, which may put you in a lower tax bracket.
2. Put money away for tax and superannuation
Contractors usually don't get annual leave or sick leave, and in some cases they don't get superannuation either. The tradeoff is a higher hourly or daily rate that's supposed to compensate for those benefits. Make sure you don't squander the portion of your wages allocated for your retirement and the tax you'll eventually have to pay. Reserve at least 9 per cent of your wages for superannuation, and put at least 30 per cent (or the usual amount of tax you pay) into a separate high-savings account. When the time comes to do your duty, you'll have accrued a little bit of interest, which is better than nothing, right?
3. Do your homework and paperwork
Browse through the ATO website. Browse through Canada's version of the ATO, the CRA. Do a Google search and read other people's experiences. Look for forums and websites aimed at bringing expats together (I suggest you start with CanAussie). Get your colleagues to recommend their lawyer and accountant friends. See what the Australian government has to say about travelling to your chosen destination. Read up on any relevant tax treaties and reciprocal agreements. Register yourself as an overseas voter with the AEC. Even if you don't find the specific answers you're looking for, you'll have picked up bits and pieces along the way that will help you complete the puzzle.
Before you leave, don't forget to make the most of all the things that makes Australia such an awesome place to live. If you do come to Canada and need a friend, send me an email.
PS Have you been there and done that already? Share your experience and tips with us in the comments below.
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