What taxes apply if you are a Canadian working outside of Canada?
Canada Pension Plan and Employment Insurance Explained
Generally, employment has to take place in Canada to be pensionable or insurable under the Canada Pension Plan or the Employment Insurance Act. However, in certain situations employment outside Canada may be pensionable or insurable. This is the case if a person is working outside Canada for a Canadian company or the Canadian government.
Requesting a ruling
If a worker or payer is not sure of the worker's employment status, either party can request a ruling to have the status determined for purposes of the Canada Pension Planand the Employment Insurance Act. More information on the ruling process is available in How to obtain a ruling for Canada Pension Plan and Employment Insurance purposes.
Canada Pension Plan
Canada has social security agreements with many countries that allow for employment outside Canada to be pensionable when certain conditions are met. These agreements are intended to eliminate cases where a worker may have to contribute to the Canada Pension Plan (CPP) and to the social security system of the other country for the same work. They also guarantee that a worker's CPP coverage is properly maintained when he or she is seconded to another country, or when itinerant workers live or work in each country.
Even if employment takes place in a country that has not signed a social security agreement with Canada, that employment may still be pensionable. This may be the case, for example, of employment that would have been pensionable, had it taken place in Canada.
This article does not provide information about self-employed workers for the purposes of the Canada Pension Plan.
Employment in a country where a social security agreement has been signed with Canada
If there is a social security agreement between Canada and the country where the worker is performing services, that agreement must be considered to determine whether the employment is pensionable. Unless it is excluded under subsection 6(2) of the Canada Pension Plan, an employment is considered pensionable if one of the following conditions are met:
- the employer operates in Canada;
- the employer undertakes to pay both the employee's and the employer's contributions, and to file the required information slip (T4);
Where neither of the conditions above are met, the employment could still be pensionable if the worker complies with the following conditions:
- the employee is a resident of Canada;
- the employee is not in an employment that would be pensionable under another provision of the Canada Pension Plan or the Canada Pension Plan Regulations;
- the employee elects to pay contributions within one year from June 15 of the year following the year in which the employment took place. (For example, if the employee's employment ended in August 2010, the employee has one year, starting June 15, 2011 and ending June 15, 2012, in which to choose to pay contributions);
- the employee pays the required contributions.
A certificate of coverage may be requested to confirm that the employment is pensionable in Canada. This request must be sent to the following address:
Ottawa Tax Services Office
CPP/EI Eligibility Rulings
333 Laurier Avenue West, 11th floor
Ottawa ON K1A 0L9
Guide T4001, Employers' Guide - Payroll Deductions and Remittances, lists the countries that have social security agreements with Canada.
Employment in a country where no social security agreement has been signed with Canada
1. When there is no social security agreement between Canada and the country where the employment is taking place, it must be determined whether the employment meets the conditions set out in subsection 16(1) of the Canada Pension Plan Regulations to be pensionable.
First, it must be determined if the employment outside Canada would be pensionable if it were in Canada. Then, it must be determined if the employee meets one of the following conditions:
- ordinarily reports for work at an establishment in Canada of his or her employer;
- is resident in Canada and is paid at or from an establishment in Canada of his or her employer;
- is an employee, other than an employee engaged locally outside Canada, of Her Majesty in right of Canada or of Her Majesty in right of a province (subject to certain conditions);
- performs services under an international development assistance program (subject to certain conditions);
- is the spouse or common-law partner of an employee described in the previous two situations (subject to some conditions); or
- is an employee of Her Majesty in right of Canada who is locally engaged (subject to certain conditions).
If the worker does not meet any of these conditions, the employment is not pensionable.
There are no procedures (forms to complete) for employment covered by subsection 16(1) of the Canada Pension Plan Regulations. When the employment meets the conditions outlined, it is pensionable as if it were in Canada.
2. When employment outside Canada is not considered pensionable under subsection 16(1) of the Canada Pension Plan Regulations and there is no social security agreement, the employer or worker still has the option of including the employment in pensionable employment. However, this option is subject to certain conditions.
The employer may exercise this option provided that:
- the employer is operating in Canada and the employment in question would be pensionable if it were in Canada;
- the employee was resident and present in Canada at the time he or she was hired; and
- the employer has undertaken to pay both the employee's and the employer's contributions for all of his or her employees that have the same employment in that country.
The employer must complete Form CPT-8 Application and Undertaking for Coverage of Employment in a Country other than Canada under the Canada Pension Plan.
If the employer does not choose to include the employee in pensionable employment, the worker may exercise this option if the following conditions are met:
- the employee is a resident of Canada;
- the employee is not in an employment that would be pensionable under another provision of the Canada Pension Plan or Canada Pension Plan Regulations;
- the employee is not required to contribute to a similar plan in the country where he or she is employed;
- following the year which the employment took place, the employee exercises this option within one year from June 15. (For example, if the employee's employment ended in August 2010, the employee has one year, starting June 15, 2011 and ending June 15, 2012, in which to choose to pay contributions); and
- the employee pays the required contributions.
The worker must complete CPT-20 Election to Pay Canada Pension Plan Contributions.
The employer and employee must pay the required Canada Pension Plan contributions and send the completed forms to the tax services office in their region.
Employment outside Canada is insurable if:
- the employed person ordinarily resides in Canada; and
- it takes place outside Canada, or partly outside Canada for an employer who is resident or has a place of
- business in Canada; and
- it would be insurable if it were in Canada; and
- it is not insurable under the laws of the country in which it takes place.
Even if the preceding conditions are met, an employment outside Canada is not insurable when:
it takes place outside Canada or partly outside Canada on a ship that is regularly employed in voyages between ports outside Canada and has been chartered to a person resident outside Canada or has a foreign registry or licence.
The meaning of "ordinarily resident" in Canada
The concept of residence is an important element in determining whether employment outside Canada is insurable and/or pensionable. The basic principle is that a person is "ordinarily resident" in Canada if Canada is the place where the individual, in the settled routine of his or her life, regularly, normally, or customarily lives. In making a determination of a person's residence status, all of the relevant facts must be considered, including residential ties with Canada and length of time, object, intention, and continuity with respect to stays in Canada and abroad.
Interpretation Bulletin IT-221R3 Determination of an Individual's Residence Status, explains the factors considered in determining an individual's residence status.
Determination of residence status
A worker may request a determination of residence status by completing Form NR73, Determination of Residency Status (Leaving Canada), and sending it to the following address:
International Tax Services Office
2204 Walkley Road
Ottawa ON K1A 1A8
The determination of residence status made by the International Tax Services Office will be used for the purposes of the Income Tax Act and will also be considered for the purposes of the Canada Pension Plan and Employment Insurance Act.