How does a Canadian work remotely, P/T, for a small US company?

January 19, 2023 7:24 PM

Should the company hire me as an employee and use a Canadian payroll company , or would it make more sense for me to set up as a sole proprietor? (asking for friend)

My former supervisor has started her own college consulting company in the U.S. and would like me to join her. I would be working 100% remotely from Canada and I have no preference for being paid in USD or CAD (I have a SSN and a SIN). There would be no one else working with us and it would also be on a very part-time basis to start (no regularly scheduled hours).

I have a F/T job here in Canada and I am a Canadian citizen so I wouldn't need health benefits, etc. This would be just a side gig for extra money. Is hiring me as an employee and using a Canadian payroll company the best route to take (even though I don't need benefits), or would it make more sense for me to set up as a sole proprietor? I really don't want this to be a huge hassle or expense to her.

She consulted her lawyer and he said she should hire me as an employee and can use H&R Block Canada for payroll. We're trying to figure out the best option, so I am asking here. Thanks!

posted by methroach to Work & Money (4 answers total)

Best answer: This question from last year and this one from 2021 are on point. From my understanding, any employer who has employees resident in Canada is responsible for paying those employees' payroll taxes. This can be somewhat onerous, particularly if, like your friend, the employer only has a handful of Canadian employees.

There are two main options for avoiding this hassle:

• Your friend uses a professional employer organization (PEO) to handle the Canadian tax compliance for her. This may or may not be what her lawyer meant about hiring H&R Block Canada; but if they don't provide this service, then other companies exist who will. They will, of course, take a substantial cut for their trouble (40-50% of your wages are the numbers that I've heard), so it doesn't qualify as "not a huge expense for her".
• Your friend hires you as an independent contractor for "consulting services". ("Subconsulting?") You'd have to meet certain requirements for this to be legitimate, but if it works, then your friend would just pay you and you'd be responsible for the payroll taxes as a self-employed person. This option wouldn't be a huge hassle or expense for her, but might be for you.

posted by Johnny Assay at 8:28 PM on January 19, 2023

Best answer: It is very easy to run a solo consulting business in Canada. As long as your gross income is under $30,000 per year from the business (so you don't have to register for GST) and you operate under your own name, you don't need to do anything other than pay taxes for your business income, at least in all the provinces that I'm familiar with. Eventually, the CRA may require you to pay taxes in instalments. If you have to register for GST eventually, that is also not onerous.

Bear in mind that you'll have to double the CPP you are used to unless you are already hitting the maximum.

This is likely to be much simpler and cheaper than paying you as an employee through a Canadian company. It does not sound like it would be difficult to structure this to meet the CRA's definition of self-employment (bearing in mind that the grey area here is large and there are many contractors who are not treated very differently from employees).
posted by ssg at 8:56 PM on January 19, 2023 [3 favorites]

It is very onerous, from a tax perspective, to own a Canadian company if you are personally responsible for filing US taxes. You’d have to include Canadian corporate information with your US tax return. If you’re in that situation (ie you are US citizen or trying to maintain some sort of status in the USA) you are far better off as an employee.
posted by shock muppet at 11:51 PM on January 19, 2023

Response by poster: Thanks everyone!
posted by methroach at 12:49 PM on January 20, 2023