You may be required to report information on individual tax returns a bit differently if employed by a non-Canadian company, depending on where income is earned, especially if you work outside the country. In addition, income data provided to you by these companies may come about in different types of forms and documents, but filing the information with the Canada Revenue Agency doesn’t have to be complicated.
Commuters living in Canada and working in the United States cross the border daily.
Wage Sources
Remembering a few basic things can relieve concerns about filing taxes on income earned from non-Canadian companies. Gary Gauvin, EA, an international tax specialist, states that, “Wage income is sourced to where services are actually performed, not where the wages come from or where they may be deposited into a bank account. Canadian residents therefore are taxable on wages received from foreign employers, just as they would be for a Canadian employer even if they do not bring the money back to Canada.”
Convert to Canadian Dollars
Regardless of where the income is earned, “Amounts do get reported in Canadian dollars,” Gauvin says. The CRA directs taxpayers to use the Bank of Canada’s data on exchange rates to determine the Canadian value at the time the income was received. If you worked for extended periods for a foreign company, the CRA states that you can convert the income to Canadian dollars by using the average annual exchange rate as provided by the Bank of Canada.
Report all Income
Remember, as the CRA notes, Canadian residents should report all forms of income both domestic and foreign. Gauvin explains, “Quite often a foreign employer does not issue a T4 slip but the income is taxable whether they do or not.”
Tax returns for Canadians working for an American company in Canada
“For example, it is common for a U.S. employer to create only the United States W-2 slip when paying wages to a Canadian resident doing work in Canada. Those wages get converted to Canadian dollars and are reported on the Canadian T1 return.”
Canadians working outside of Canada
“As a Canadian resident you are also taxable on wages even if you earned them outside Canada, and they are reported in the same way.”
U.S. Commuters
The CRA reminds Canadian residents who commute to the United States to work to check W-2 forms to see if contributions to a retirement plan were deducted from wages or salary. If so, the contributed amounts must be added back to figure income on your Canadian federal tax return. In addition, taxes paid to a foreign government must be included in total income. “Wages earned outside Canada are not doubled tax however, as they are eligible for a foreign tax credit on the Canadian return if there are foreign taxes payable,” Gauvin says.
Foreign Tax Credit
The foreign tax credit is claimed by completing Form T2209 to figure your credit and entering the amount on your tax return. “Foreign wage income must be the gross foreign income, before reduction for pension contributions, social security contributions, travel or housing allowances or any other amounts allowed as deductions in the foreign country,” Gauvin notes. He gives as an example a U.S. W-2 form, which “would need to have the 401(k) pension contributions added back to wage income to get to the reportable amount for Canadian tax reporting.”
Supporting Paperwork
If you retain documentation supporting all foreign income, this can simplify the process at filing time. Gauvin instructs, “For wages received from a U.S. employer, a copy of the W-2 and the U.S. tax return filed must be attached to the Canadian return to substantiate the foreign tax paid. In countries that do not issue tax slips, or report on other than a calendar year, you should attach copies of the year-end pay stubs to support the calculation of income.”
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