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Earning money outside of Canada

Expert: Donna Lee

Andrea asked:

I have recently been hired by a company out of New York to do work out of my home in Alberta. They send me money orders each Friday for pay, they said they do not take taxes off and I am wondering if I have to pay taxes and claim these monies or how do I go about all of this?

Donna Lee answered:

Canadian residents are taxed on their worldwide income. Therefore, the income earned from your contract with a New York company is subject to Canadian taxes. If you are self-employed (i.e. you have not incorporated your business), you can report your income on your personal tax return and claim appropriate expenses that relate to earning income from your business (e.g. automobile and home expenses - although there are specific restrictions). If you are self-employed, you will also be responsible to pay both the employer and employee portion of CPP (which is calculated on your tax return).

Since self-employed persons are not subject to the withholding tax system, (i.e. no tax deductions have been taken by the payer and remitted to the CRA on your behalf) you may be required to pay installments on account of tax payable for the current year (the threshold is if you owe CRA more than $3,000 on your federal tax return in the current year (2008) and either one of the two preceding years (2007 or 2006), you will be required to make installment payments of tax (quarterly).

About the author

Donna Lee is a Senior Tax Manager at Meyers Norris Penny LLP in Calgary, AB.

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