6 months in Canada-6 months in Japan while working for a Canadian employer: is it possible?

[caroline90]

@mariangel You just file your own tax return and pay taxes directly.

 

[mariangel]

@caroline90 Employers are legally required to withhold taxes in Canada. Leaving it up to the employee is not an available choice. I am surprised that Japan does not have similar rules.

 

[caroline90]

@mariangel I was talking about Japan taxes. But generally a company will withhold taxes in Japan and pay a bunch of other stuff too but that is not an option if you get paid from outside Japan.

 

[mariangel]

@caroline90 A foreign employer with no PR in Canada but employs a person in Canada is required to register with the CRA and withhold all taxes and payroll deductions. I believe similar rules exist in other countries. It seems odd to me that Japan does not require this too .

 

[caroline90]

@mariangel Why would the foreign company care? CRA has no jurisdiction over the foreign company, what can CRA do? I can see it may be possible if the 2 countries have a tax treaty, but otherwise?

 

[mariangel]

@caroline90 If the foreign company does any business in Canada it should care. Obviously, the CRA will have very little leverage in many situations but that is a common problem when dealing with tax compliance for foreign corporations. That said, most foreign companies in this situation would opt for a contractor relationship which puts the onus on the worker.

 

[caroline90]

@mariangel I asked my mom who, before retirement, was a CRA investigator auditing canadian and foreign business who must file with CRA. She isn't aware of a system for foreign based companies to withhold income taxes for canadian residents. Do you have a source of information for this system on the CRA website?

 

[backhoebob]

@greenmart123 I have a similar situation. I’m thinking about marriage with my Japanese girlfriend and moving to Japan with her. I work for a Canadian IT company that allows me to work from here. I could either ask my company to make me a freelancer or keep my employment. But I’m really don’t know anything about tax and I’m scared about getting in trouble with double tax (which would literally be a big issue for my economy). What should I do? Is there anyone who can legally help me in Canada or Japan?

 

[caroline90]

@greenmart123 I don't understand the issue you are asking about. You don't automatically become nonresident for tax purposes unless you apply for it. You can stay in Japan full time and still be considered a factual resident of Canada. You will have to file tax returns in both countries. But it's unlikely you will have to pay taxes to Canada after Japan take their hefty cut.

 

[kristhuy]

@caroline90

it's unlikely you will have to pay taxes to Canada after Japan take their hefty cut.

Canada won't give you credit for the tax you paid to Japan unless the tax you paid to Japan complies with the Canada-Japan treaty. And under the treaty, you can only be a tax resident of one of the two countries at any given time (meaning that only one of the two countries can tax you on your global income). So if you don't assert your treaty-based right to be taxed as a non-resident by the appropriate country, you can be subject to double-taxation.

 

[xd_kimmyy]

@kristhuy wait can you elect to be considered only a tax resident of Canada?

Why did no one mention this to me in regards to my situation? (Tax resident of both but want to avoid paying higher Japanese tax on cryptocurrency gains)

How can I do that?

And are you sure you can use the treaty to only be a tax resident of Canada even if you stay longer than 183 days in japan?

 

[kristhuy]

@xd_kimmyy

can you elect to be considered only a tax resident of Canada?

No, tax residency is not something you can choose. Under the Japan-Canada treaty you will either be a tax resident of Japan or a tax resident of Canada. You can't be a tax resident of both countries simultaneously.

are you sure you can use the treaty to only be a tax resident of Canada even if you stay longer than 183 days in japan?

Japan has no 183-day-rule for tax residency. Whether you are a Japanese tax resident or not is determined by the circumstances of your life.

 

[xd_kimmyy]

@kristhuy I'm sorry I'm a little bit confused,

In one comment you say "you can assert your treaty based right to be considered a non-resident for tax purposes of one country"

But then you say you can't choose it.

What does "assert" mean in this context?

Do you mean that if you live in japan your only option is to tell Canada you are not a resident? Or do you mean it's up to you to make the case to the CRA and the NTA which country you have stronger ties to?

 

[kristhuy]

@xd_kimmyy The treaty provides you with the right to be considered a non-resident of one specific country. You can't choose which country that is, though. Which country you have the right to be considered a non-resident of depends on the facts of your life.

It is not mandatory to assert your treaty-based right to be considered a non-resident of whichever country the treaty provides you with the right to be considered a non-resident of. But if you don't assert your treaty-based right, you may be treated as a resident of both countries simultaneously, which will typically result in double-taxation.

The reason it typically results in double-taxation is that the tax imposed by the country you had the right to be considered a non-resident of violates the treaty to the extent it exceeds the amount of tax you would have paid if you were treated as a non-resident by that country, and neither country will provide a foreign tax credit with respect to foreign tax that violates a treaty.

For example, if the treaty gives you the right to be considered a non-resident of Japan, and you let Japan tax you as a resident (e.g., by taxing you on the sale of crypto, which is not Japan-source income), Canada will not give you a foreign tax credit in recognition of the tax you paid to Japan, because the tax you paid to Japan—in this example—violated the treaty. Only foreign tax that complies with the treaty can give rise to foreign tax credits, which is why it is typically important to (1) work out which country you have the right to be considered a non-resident of, under the treaty and (2) do whatever is necessary to ensure that you are treated as a non-resident by the relevant country.

 

[xd_kimmyy]

@kristhuy この返事で本当にありがとうございます

So I guess with all that being said I need to find myself a tax specialist that can work out which country I can use the tax treaty for and then how to actually apply said treaty to avoid getting double taxed.