Working Remotely for an American Company as a Canadian

There are a lot of American companies out there looking to hire internationally, which means a lot of opportunities for Canadians. Maybe you’re curious about working remotely or you’re unsure how to navigate an offer for remote work. How does it work? Should you be an employee or a contractor? How do you set up a business? How is it working for a company that’s so physically far away?

International Employers

Employers who hire internationally will often default to offering contracts rather than setting up the infrastructure that is required to take on a full-time international employee. The labour laws in different countries vary and can be difficult and expensive to accommodate. Chances are, if you’re looking for remote work internationally, you’ll have to set yourself up as an independent contractor.

Employee or Contractor?

The first thing to determine when you’re looking at job opportunities, is whether it’s a contract or employment being offered. There are pros and cons with both options.

Contractors don’t get benefit packages, EI, or pensions without paying into their own CPP(Canada Pension Plan) or health contributions (and you’re often required to pay double — as employer and employee). As the Sole Proprietor of your new business, you’ll be planning for tax season, tracking business expenses, and invoicing your client(s). Running your own business may seem daunting, so here are some tips from a person that’s recently been through it.

First off, here are a couple of fail safe ways to figure out if your job offer is for an employee or contractor.

#1: Who is in control?

The most important difference between being employed and an independent is who is in the drivers seat. Do you have the opportunity to take on other contracts? Can you subcontract the work and/or hire assistants? If the employer dictates when you work, where you work, and how you work, then it’s an employer-employee relationship.

#2: Who owns the equipment?

Who incurs the cost if your computer breaks? Are you renting an office? Do you need to buy your own office furniture?

#3: Who takes on the financial risks and chance for profit/loss?

Do you cover operating costs of your business? Does the employer determine the amount and method of pay? Is the working relationship ongoing?

I would encourage you to read some more in-depth resources on this topic:

http://www.cra-arc.gc.ca/E/pub/tg/rc4110/rc4110-e.html http://sbinfocanada.about.com/od/taxinfo/a/contractor1.htm http://www.cfib-fcei.ca/english/article/3057-do-you-know-if-your-worker-is-an-employee-or-a-self-employed-contractor.html

The main thing you want to do is protect yourself and make sure you’re not entering into a contract that takes advantage of you. There can be a pretty significant grey area between being an employee and a contractor and accepting an offer often requires you to take a leap of faith. Make sure you ask a ton of questions regarding the company’s history with its remote workers, contract policies, ethical guidelines, etc., enough so that you get a sense of their reputation and trustworthiness. Listen to your intuition and make note of any red flags.

If you’re still confused or need a second opinion, the labour board in your province or territory can be extremely helpful. Here’s a link to the Ontario Ministry of Labour site.

Setting up as a Sole Proprietor

If you don’t plan on incorporating, hiring any employees, or working with a partner for the first little bit, you’ll want to set yourself up as a Sole Proprietor.

A Sole Proprietorship is a type of business entity that is owned and run by one natural person and in which there is no legal distinction between the owner and the business. The owner is in direct control of all elements and is legally accountable for the finances of such business and this may include debts, loans, loss etc.

via Wikipedia

As a sole proprietor, you’ll first need to register as a business, and register your business name to receive a Business Number. In the future you’ll reference your business number in your invoices, if you apply for GST/HST, if you apply for EI Special Benefits, etc.

To do this, you first have to register your business name on your provinces service website. For Ontario, it’s Service Ontario. When I did this application, I did the following step first, was redirected to this page when I said my business name wasn’t yet registered, and then there was no way to return to my form. I had to call in the rest. Such a pain in the ass! It costs about $60 to register your business name and they only accept credit cards.

It’s a good idea to use your own name as your business name. If you want to use a trade name or business name, you’ll have to go through the process of trademarking it which can be a lot of extra work.

Next, you register your business online using the Canada Revenue Agency website. Make sure you have your SIN number handy. There’s a ton of information available on the CRA website but, FYI, it’s not organized very intuitively.

You’ll soon learn that using government websites is an exercise requiring superhuman patience.

And you’ll likely need to call in for help — the number for CRA is 1–800–959–5525. They’re only open from 9am to 6pm, and don’t be surprised if you get the busy signal the first 15 times you call. Yep. Busy signal.

When you’re applying, you’ll be asked if you want to register for GST/HST. All Canadian businesses charging clients in Canada MUST charge tax.

GST/HST

If you’re a Canadian working for an American company, your services may be what they call zero-rated. This applies to services and intellectual property that is exported outside Canada and is not generally consumed, used, or enjoyed in Canada. In my case, I do product design where the work is saved on servers outside Canada, where the product is delivered to a US company who sells the services from the US. This type of work IS zero-rated. Here are the CRA zero-rated documents for reference and CRA electronic commerce reference. It would be a good idea to reference those above documents in your invoices just in case the CRA questions you about not charging HST.

If you’ll be taking on contracts for Canadian companies as well as American, you should definitely register for HST. If you’re just working for American companies, and your services are indeed zero-rated, you have a choice whether or not to register for HST. I ended up registering for HST anyway, because I didn’t know what I was doing, and ended up cancelling it after the second year.

You don’t need an HST account to write off business expenses. Writing off expenses means that any purchase I make for my business (desk, computers, office supplies) I can file with the CRA and have it count against my income for tax time. If I do have an HST account, I could file the HST on all work purchases and receive a rebate on the HST or a percentage of the HST that I paid purchasing those items.

I was initially confused about what writing off something meant- I thought that maybe you would get the entire purchase price back. Sadly, not true. And it really doesn’t make sense to make any extra purchases just because you can ‘write them off’. The savings you get on HST or at tax time wouldn’t equal the amount of money spent on most goods.

So, when you’re registering your business, you can also register for GST/HST. I would recommend selecting the option to ‘file annually’. This way, if you’re using an accountant they can file your GST/HST for you at tax time.

Money, Money, Money

When I first started learning what was involved in running a sole proprietorship, I knew I was likely going to need some help- especially with financials. I first went to my local economic development board office and met with a consultant. In addition to telling me about setting up as a new business, he gave me an intro into what percentage I should deduct from my earnings for taxes, and the best way to move around my money to get the best tax return. My taxes previous to this new venture have been pretty straightforward — T4 and I’m done. So instead of stressing about navigating the world of number crunching, I found an accountant that would be able to file mine.

I would 100000000% recommend this. As a sole proprietor, your business and personal taxes are one in the same, so there’s no need for any separate returns. I just have to keep track of my business expenses, and at the end of the year, she’ll take all my information and file my taxes as well as my GST/HST return.

Keeping Track of Expenses & Protecting Yourself

I created a spreadsheet to keep track of my expenses with the following columns organized monthly:

• Income
• Taxes, GST/HST Related Expenses
  - Rent/Utilities for my office space square footage (Figure out your home or apartment’s total square footage, and then figure out what percentage your office takes up. Then look at your rent/utilities and calculate what the office % of that cost would be)
  - Office supplies
  - Office furniture
  - Vehicle mileage & travel expenses
  - Internet

# 1 Rule: SAVE ALL YOUR RECEIPTS

Accountants need your receipts and in the unfortunate case that you get audited, they’re essential.

Be Prepared for Tax Season!

You MUST deduct taxes from your income as you receive it. This isn’t actually a law, but if you don’t do it, you could get hit with a major bill from the government at tax time. I opened up a savings account, and now put 35% of my income in there every time I get paid. If you don’t trust yourself not to touch your tax savings, you can set yourself up to file it quarterly with the CRA. This percentage accounts for income tax, CPP (Canadian Pension Plan) contributions, and EI (Employment Insurance). As a sole proprietor, you get to pay both employee AND employer CPP and EI. YEY. When you run your own business, paying into EI is optional. The government now offers what’s called Special Benefits for Self-Employed People. I opted in so that I would be covered for maternity/parental leave in the future. You can do this on Service Canada’s website.

Note: I opted not to pay for independent health insurance, but this is also something you could look into.

Budgeting Pro Tip:

Since you’re working for an American company, you’ll likely get paid in American dollars. This can make budgeting difficult because your income is always fluctuating. Since the Canadian dollar is terrible right now, I act like I’m only earning at par. All the money I make off the exchange rate, I put straight into savings and pretend it was never there.

Invoicing

Lucky you! You get to invoice your client for the work you’ve done. How often you do this depends on your contract.

Here’s a list of things I include on my invoice:

• My name, address, phone #, email
• Company name
• Invoice # (I made mine the year and successive number)
• Business number
• Invoice date
• Amount owing
• Payment due date
• Description of services
  - Description
  - Rate
  - Amount
  - Taxes (Mine says 0%* with a footnote referencing the CRA zero-rated documents)
  - Subtotal
  - Total
• Thank you
• Description of payment terms *e.g. Payment should be made by bank transfer made payable to John Smith within 21 days of receiving this invoice.
• Current exchange rate if there are any items that you’ve shown in Canadian Dollars

Example:

Phew!

That was a lot to think about- and you haven’t even started your actual work yet! Don’t worry, once you get it all set up, you won’t have to think about it too often.

Just remember:

• Do your research and trust your gut
• If you get stuck or confused, ask an expert or mentor

Originally published at designstack.io on August 21, 2015.