With the rise of remote work, more Canadians are moving abroad while continuing to provide services for Canadian companies. Many employers are uncertain whether they must continue to withhold Canadian payroll taxes when paying employees who have left the country. The Canada Revenue Agency (CRA) has recently provided clear guidance on this issue.
Case Background
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The employee originally lived in Canada and worked for a Canadian company.
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In 2023, the employee officially moved abroad and became a non-resident for Canadian tax purposes.
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After relocating, the employee continued to provide remote services to the Canadian company, but all work was performed outside of Canada.
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The employee is paying personal income tax in their country of residence.
The employer’s question: Must Canadian payroll tax still be withheld from the employee’s salary?
CRA’s Response
Normally, Canadian employers are required to withhold income tax from employee wages. However, the CRA clarified that:
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If the employee is no longer a Canadian resident;
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All employment duties are performed outside Canada;
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The employee is paying income tax in their country of residence;
👉 Then the Canadian employer does not need to withhold Canadian income tax.
In other words:
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Work performed abroad is not considered “employment in Canada.”
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Income already taxed in another country does not require Canadian withholding.
Employer Reporting Obligations
Even if no tax is withheld, employers still have information reporting duties:
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Employers must issue a T4 Slip and file a T4 Summary with the CRA.
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On the T4 Slip, under Province of Employment:
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Use “US” if the employee resides in the United States.
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Use “ZZ” if the employee resides in another country.
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Since the work is not performed in Canada, Employment Insurance (EI) and Canada Pension Plan (CPP) contributions typically do not apply.
Thus, while no tax is withheld, the reporting requirement remains mandatory.
What This Means
For Employers:
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Avoids double withholding.
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Reduces administrative burden and social security contributions.
For Employees:
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Only subject to income tax in their country of residence.
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Avoids double taxation and the complexity of filing in both countries.
This reflects the CRA’s effort to adapt to the global trend of remote work.
Key Takeaways
If your company is in Canada and the employee has relocated abroad and is paying local taxes:
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No Canadian income tax withholding is required.
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Employers must still report the wages by issuing a T4 and T4 Summary.
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“US” or “ZZ” must be correctly entered as the Province of Employment.
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EI and CPP generally do not apply.
Frequently Asked Questions (FAQ)
1. What if the employee occasionally works in Canada?
If some workdays are spent in Canada, the portion of income tied to those days may be subject to Canadian withholding. Employers should assess carefully and seek professional advice.
2. Should the employer issue a T4 or NR4?
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For employment income under an employment relationship → T4 Slip.
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For non-employment payments such as consulting or service fees → NR4 Slip may apply.
3. Why report “US” or “ZZ” on the T4?
The CRA requires employers to indicate the province of employment. For non-residents:
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“US” = Employee resides in the United States.
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“ZZ” = Employee resides in another country.
This ensures the CRA recognizes the work as performed abroad, not subject to Canadian provincial taxes.
4. Do EI and CPP contributions apply?
No. These programs apply only to employees working in Canada.
5. If no tax is withheld, can the employer simply ignore it?
No. Employers are still required to fulfill reporting obligations by issuing a T4 and filing a T4 Summary. Failure to comply may result in CRA penalties.
6. Does the employee need to file a Canadian tax return?
Generally, no — if they are a non-resident, all work is performed abroad, and income is taxed locally. However, if they still earn Canadian-sourced income (e.g., work done while physically in Canada), they may need to file a non-resident return. Professional tax advice is recommended.
Conclusion
In today’s world of global remote work, employers and employees alike benefit from understanding CRA’s approach:
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Employers save time and costs by not withholding unnecessary taxes.
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Employees avoid double taxation and unnecessary filing obligations.
Proper reporting ensures compliance, while clear rules make international work arrangements easier to manage.