Still Working From Home? – Breaking Down The Implications Of Remote Work On Taxes
During the global COVID-19 pandemic, employers have embraced an environment where employees work from home. With the opportunity to work from home, some Canadians are taking the opportunity to work from anywhere. For some, that means working from the cottage or working from a foreign location. While this has been a great opportunity for employees and employers alike, there’s just one catch: understanding the impact of working remotely on taxes.
In this article, we will explain where Canadian remote workers pay taxes and the unique tax implications of working remotely.
Working for an employer in the same province
This is the simplest situation when it comes to filing your annual tax return, and in this case, remote working can create taxation benefits for you. Under the existing Canadian tax laws, employees are taxed in the province where they reside. Similarly, companies withhold income tax and other deductibles based on the rate determined by the province where they are located. So long as the employee and employer are based in the same province, these amounts match for easy filing.
Also, similar to last year, once again for 2021 there is an available tax credit for Canadian workers who were required to work from home due to COVID-19. This deduction can be claimed on your personal income tax return. Deductions lower the total income you are taxed on, reducing your overall income tax liability.
Working for an employer in a different province
If you’re an employee, you’ll get taxed based on the province where your employer is located. As a remote worker, your employer will deduct and remit taxes for you in the province where they are domiciled, not necessarily where you live.
For example: Let’s say you live in Vancouver, B.C., and work for an Ontario company. Your employer will deduct your Canada Pension Plan (CPP) contributions, employment insurance (EI) premiums, and income taxes at the Ontario tax rate.
Working for an employer in a different country
If you work remotely from your residence in Canada, you are responsible for paying taxes here in Canada. Income tax requirements in this country are based on your residency, regardless of who your employer is or where they are located. Therefore, your tax rate will be determined by the province that you live in – even if you are a remote worker for an organization located outside of the country.
Tax implications of working remotely
Here’s what you can and can’t claim:
All salaried employees and commission employees can claim
- Electricity
- Heat
- Water
- Utility portion (electricity, heat, and water) of your condominium fees
- Home Internet access fees
- Office supplies and phone expenses
- Maintenance and minor repair costs
- Rent paid for a house or apartment where you live
Commission employees can also claim
- Home insurance
- Property taxes
- Lease of a cell phone, computer, laptop, tablet, fax machine, etc. that reasonably relate to earning commission income
Cannot be claimed
Salaried employees and commission employees cannot claim
- Mortgage interest
- Principal mortgage payments
- Home Internet connection fees
- Furniture
- Capital expenses (replacing windows, flooring, furnace, etc)
- Wall decorations
Tax Talk with Accountant
The pandemic has proven that remote work is not only possible but also, in some cases, advantageous. However, the advantages of remote work arrangements need to be weighed against the correlative tax challenges and potential compliance risks. If you do decide to work abroad, it is also important to seek the advice of an accountant and financial planner as the choices you make could have an impact on your financial plan. Speak to DM Tax accountants if you are considering working abroad and have additional questions.