Having to consider the tax implication of foreign employment income is common in many cases where taxpayers take temporary employment transfers abroad. If a taxpayer maintains residential tax ties to Canada, their worldwide income is reportable and taxable in the T1 return (i.e. including foreign income).
If a taxpayer emigrates from Canada, severing any residential ties, many accrued gains on capital may be realized and an emigration return will be required. Not all capital properties are deemed disposed of on emigration. For example, property meeting the definition of Taxable Canadian Property is taxable when disposed of, not when a person’s tax residence changes.
Where an individual has worked in the U.S. and received a W-2 (equivalent of a Canadian T4) from employment, a 1040NR form and state returns may be required so as to determine that individual’s final tax liability. The W-2 does not represent the final determination of taxes owing. Payroll taxes, such as Social Security and Medicare, can be added to the tax liability on 1040NR and state (and municipal) tax liability may also attach. Tax treaty provisions must also be considered when determining which country gets to tax employment income of persons eligible to treaty benefits.
Disclaimer: Articles are for general information only and do not constitute tax advice. They cannot be relied upon.
Sam Faris is a Toronto-based Chartered Professional Accountant who practices as an independent consultant on high-level Canadian tax matters and handling disputes with CRA.He also published an article recently in the business magazine: HERE.