Overseas contractors beware - Tax issues

[Darkhorse]

Hello all fellow overseas contractors (pilots, engineers) Canada revenue agency (CRA) is after your money and contracting airline companies as usual only want to pay as little as possible for you to leave home go overseas for extended periods of time in crappy places.

Here is the issue. The CRA is phasing out the Overseas tax credit within the next 4 years. Therefore, any money you earn overseas will be taxed at the full rate in Canada. What this means is that the money you earned in the past at little to no tax will no longer exist. Canadian companies fail to mention this when they advertise "looking for overseas contractors" They will mention that there is an Overseas tax credit but they fail to mention the details behind the CRA's plan to phase it out completely.

see link below

http://www.cra-arc.gc.ca/gncy/bdgt/2012/qa07-eng.html

The other tax option is the "Foreign Tax Credit" This is when the company pays your taxes owing in the foreign country you are working in. for example if you work in Foreign country "Beetlejuice", and your contracting company pays 30% of the money you earn in Beetlejuice, you can then present proof to the CRA that you paid taxes in that country. If CRA calculates that you paid enough, then you do not owe any taxes in Canada, BUT if the CRA calculates that you did not pay enough taxes in Beetlejuice, then the CRA will demand more tax from you in Canada.

You have to have proof from the foreign country that you paid taxes in that country - NO Proof, then no tax benefit.
You can only use one of the above forms of tax calculations when submitting your taxes. You cannot use both.


The main point here is that you should be aware of the tax implications before accepting any offer from a company making promises of big bucks overseas. Secondly, be aware that most companies will not provide the information and you need to seek it out. Contracting companies are looking to fill positions and that is their main goal.

Hope this helps

[trey kule]

Actually, the OETC had some restrictions on who you worked for and the type of work, so it has, in many cases , never applied to overseas contractors...The payment to one govt or another though has, and occassionally to both...

As it is phased out, it will mean that higher day rates will have to be charged for those who are losing the credit.
Cost of doing business.

[tbaylx]

Also don't confuse a canadian resident who works overseas on contract, but retains residency in Canada with someone who has moved overseas to work and has filled out the appropriate CRA form to claim non residency. Unlike the US if you are not a resident of canada (even though you retain your citizenship) you are not liable for canadian taxes.

[longjon]

Also the country you get the "paid on behalf" letter from has to have a agreement with CRA. I looked on their site years ago but am certain Beetlejuice is not on the list.

I'm not a contracter but an expat and when people ask me hows the salary I say roughly speaking we earn in 6 months the same as you would earn in Canada in 12, BUT pay little or no tax, otherwise why would you do it.

[Darkhorse]

Also the country you get the "paid on behalf" letter from has to have a agreement with CRA. I looked on their site years ago but am certain Beetlejuice is not on the list.

I'm not a contracter but an expat and when people ask me hows the salary I say roughly speaking we earn in 6 months the same as you would earn in Canada in 12, BUT pay little or no tax, otherwise why would you do it.

That is not entirely correct. The country you are working in does not necessarily have to have a tax agreement with Canada. I do know this as I am working in one at the moment. As long as one has a letter from the government and proof from the company you work for, then CRA will accept this as you paying taxes in that country.

[Darkhorse]

Actually, the OETC had some restrictions on who you worked for and the type of work, so it has, in many cases , never applied to overseas contractors...The payment to one govt or another though has, and occassionally to both...

As it is phased out, it will mean that higher day rates will have to be charged for those who are losing the credit.
Cost of doing business.

The Over seas tax credit is utilized in situations where one works for an oil exploration / mining company or for the United Nations. This does apply to many contractors who may work for Chevron, Esso, etc. or the World Food program, U.N. etc. A contractor can only legally claim the Overseas tax credit or the Foreign tax credit. NOT BOTH.

As it is phased out in the next 4 -5 years, this will affect any involved in this type of work overseas. Net result. Your salary will be taxed at the normal Canadian rate and yes you are correct higher per diems or some form of benefit will have to be implemented to compensate for the higher tax rate

[Darkhorse]

Also don't confuse a canadian resident who works overseas on contract, but retains residency in Canada with someone who has moved overseas to work and has filled out the appropriate CRA form to claim non residency. Unlike the US if you are not a resident of canada (even though you retain your citizenship) you are not liable for canadian taxes.

Good point. This applies to people who retain residency and citizenship in Canada. If you are a non resident and live somewhere else... Then you are on your own as to what you want to do with your money. This information is meant for the ones that retain the a Canada address and pay cdn taxes.