Everything you need to know before becoming a digital nomad

For some workers, travel does not necessarily rhyme with vacation. Indeed, some professionals take advantage of the possibility of working remotely in order to leave Canada and work wherever they want.

In the jargon of the community, these workers are called “digital nomads” or “digital nomads”. Although the latter do not represent the majority of society, it is a safe bet that the number of expatriates who will adopt this way of life will continue to grow in the coming years due to the democratization of teleworking.

Telecommuting is gaining popularity

Some countries and states have already started to put in place incentive measures aimed at attracting these “digital nomads” to their territory. To this end, it is possible to think of tax relief, access to temporary work permits or the establishment of subsidies to facilitate relocation.

However, before succumbing to the lure of these different measures, it is important to understand the different tax implications that can result from the choice to work abroad.

Tax residency

In Canada, a tax resident must declare his worldwide income received during the year and pay taxes on these amounts. As a result, even if a person makes the decision to leave Canada to work abroad, they could still be subject to Canadian tax. In order to determine the tax obligations of a taxpayer towards Canada, it is therefore essential to position oneself in relation to the thorny question of his tax residence.

According to the Income Tax Act (hereinafter “ITA”), a taxpayer can be a deemed resident of Canada or a factual resident.

The deemed resident of Canada

In order to be a deemed resident, it is necessary to be covered by certain specific provisions of the ITA which make it possible to establish a presumption of residence. For example, some provisions relate to the number of days resided in the country or the type of employment performed.

The de facto resident

In order to be a factual resident of Canada, it is rather necessary to analyze the ties that the taxpayer has to the country. The most important ties analyzed are the location of the residence, the location of their spouse or de facto spouse and the location of their dependents. It is important to specify that none of these links is preponderant and that they must be analyzed according to the facts specific to each case.

The presence of other ties to the country can also have a weight in the analysis, such as the presence of personal property, social ties, economic ties, in short, various elements which tend to demonstrate that the taxpayer retains a attachment to the country.

Beware of double taxation as a digital nomad!

In light of the above, one of the first questions a taxpayer who wishes to become a “digital nomad” must ask is whether he wishes to maintain ties to Canada.

If this is the case, he will have to be careful of the risks of double taxation arising from the fact that he will continue to be taxed on his worldwide income in Canada. If the taxpayer wishes instead to no longer be a Canadian tax resident, he must ensure that he meets certain minimum requirements.

A digital nomad who maintains ties to Canada

As mentioned above, a taxpayer who retains ties to Canada and who remains a Canadian tax resident will be taxed on his worldwide income. However, the latter can still claim all the refundable and non-refundable tax credits to which he is entitled, because he will be taxed as if he had never left Canada.

Digital nomad and allowances

For example, if the taxpayer was normally entitled to the Canada child benefit, the government would continue to pay him the benefits to which he is entitled provided that certain obligations are met, such as the need to file income. Interestingly, this allowance also remains available for children born while the taxpayer is outside of Canada.

Remote Worker and Tax Credits

In addition, it will be possible for Canadian tax residents to claim a foreign tax credit. Concretely, this credit makes it possible to avoid having to pay taxes twice on the same income by allowing a reduction of the taxes payable in Canada based on the taxes paid to another country. However, access to this tax credit does not mean that no tax return will have to be filed abroad.

It remains important to anticipate the tax consequences inherent in working in another country, especially when the stay is a few months. This analysis should, among other things, consider the tax treaties entered into between the countries as well as the issue or not of a work visa allowing certain tax relief.

It is therefore necessary to be very attentive to the tax aspect if you plan to become a digital nomad. Consulting tax experts like Barricad can help you see things more clearly.

A digital nomad who retains only minimal ties to Canada

If the taxpayer is ready to make the leap definitively into expatriate life, it may then become interesting to cut his ties with Canada in order to cease to be a tax resident there.

To do so, the taxpayer must be able to prove his intention to leave Canada permanently. The sale of his main residence, his personal property, proof that his spouse or dependents are leaving the country are all factors that will weigh in the balance. Of course, certain administrative formalities must be completed (ex: notify your Canadian payers) and certain tax obligations must be respected (ex: declaration of income upon departure and payment of certain taxes).

With regard to this last point, it is essential to specify that the taxpayer's property, apart from a few which are subject to specific exceptions, will be the subject of a deemed disposition so as to generate a tax of departure. Although mandatory, this tax, resulting from the deemed disposition, can sometimes be reduced when the departure is planned in advance.

Benefits of no longer being a Canadian tax resident as a digital teleworker

As for the advantages of ceasing to be a Canadian tax resident, there is of course the advantage of reducing one's tax obligations towards a country with which a taxpayer no longer has any ties (pay attention, however, to source deductions), but there is also the possibility of taking full advantage of the legislative provisions proposed by other countries in order to attract “digital nomads”.

Legislative proposals

As mentioned, some countries try to attract travelers to their territory by offering tax benefits to taxpayers who decide to relocate there.

Greece is a good example of this type of policy adopted. In order to attract foreign workers, the country passed a law in 2020 that allows digital nomads to tax only 50% of income earned by self-employed or newly employed workers for a position created in 2021. This offer is valid for a period of 7 years for all taxpayers who decide to establish their residence in the country.

Moreover, there is no need to travel that far to observe the adoption of such incentive measures. A study on the issue carried out in the United States identified 24 programs set up by states with the aim of encouraging workers to travel to their territory to work remotely.

Regardless of the taxpayer's desired destination or the ties they wish to maintain in Canada, it is important to consult specialists in the field to avoid unpleasant surprises when you take the leap to become a digital nomad. If this type of project interests you, do not hesitate to make an appointment with one of our team members!