CapRelo Blog

Tax Considerations for Relocating Canadian Employees to the U.S.

Posted by Amy Mergler on Thu, Feb 04, 2016


In today’s labor market, talent mobility is becoming increasingly important. First, there’s a growing necessity for companies to function at a global level. Thanks to continuously improving communications technology, organizations are collaborating with partners and breaking into markets overseas. As a result, there are more relocation opportunities for employees to gain international experience.

Second, millennials – who’ve grown up in this hyperconnected world – expect to be given opportunities to work overseas. Whereas international assignments used to be reserved for highly experienced employees, nowadays, international transferees are often at the beginning of their careers. And though they’re likely to possess fewer assets than more seasoned employees, it’s nevertheless critical to be aware of the tax implications of relocating to a different country.

This is especially important for Canadian employees relocating to the United States. Both countries have a number of tax laws that can have a significant impact on the amount of taxes an employee has to pay on income and assets. In some cases, employees might even be subject to double taxation. That’s why it’s imperative that employers work with their employees to determine the best course of action ahead of time.

Keep the following considerations in mind:

  1. Tax residency. Canada levies income tax based on residency, so employees who retain their primary residency in Canada are likely to have to pay income taxes. The U.S., however, levies taxes on a citizen’s or resident’s worldwide income. The complication here is that the U.S. might consider someone a permanent resident based on the substantial presence test (SPT). This means it’s possible that an employee could be subject to double taxation, which can be extremely costly—even when you keep in mind that U.S. taxes are typically much lower than Canadian ones.
  2. Departure tax.When an employee leaves Canada and takes up permanent residency in the U.S., or when the SPT deems that employee to be a permanent resident of the U.S., he or she is no longer subject to income tax in Canada. However, assets the employee retains in Canada will still be taxed. These assets include: dividends, annuity payments, royalties and rental payments, amongst others. Real estate and registered retirement savings plans are exempt.
  3. U.S. estate tax. If an employee becomes a permanent resident of the U.S., he or she is subject to U.S. estate tax, which is levied on all of a resident’s worldwide assets if they amount to more than 5.43 million U.S. dollars and their assets in the U.S. if they’re valued at a minimum of $60,000 U.S. dollars. Again, if the employee retains assets in Canada, this could result in a double taxation situation.

It’s clear that when tax time rolls around, transferees could face complicated and expensive situations that could very well affect their engagement with their employer. To prevent this and ensure companies retain their people, employers are advised to provide proper assistance in terms of accounting and estate planning to all of their transferees.

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Although this written communication may address tax issues, it is not a covered opinion as described in Circular 230.  Therefore, to ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication (including any attachments), unless expressly stated otherwise, was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matter(s) addressed herein.

Topics: tax impact of relocation, relocation taxes, global mobility, international relocation

How to Overcome Culture Shock

Posted by Amy Mergler on Wed, Sep 09, 2015

international_relocationWhether an assignee is moving to a new region for the first time or has dozens of assignments under his or her belt, culture shock is always a possibility. The disorientation and frustration that come with culture shock can be sparked by a variety of cultural differences – including diet, humor, gender hierarchies and acceptable clothing.

While culture shock may only produce mild irritation, it could also be severe enough to cause an employee to isolate himself and withdraw. This problem can affect job performance, an employee's health and wellbeing and – in the worst cases – it can cause an employee to leave the company.

Learn more about managing global assignments with our free guide.

Take the Shock Out of IT

An assignee may never learn to love the spicy food of the new country, but it helps to know what to expect before the first dinner out with clients. Being prepared means the assignee can ask for a less spicy menu item or be sure to keep plenty of water on hand.

The experience of living in a new country already involves plenty of unknowns, so employees should be as knowledgeable as possible about major cultural differences before they arrive. By taking cultural transition classes or reading up on the new country, employees can anticipate and prepare for potential difficulties.

Make Time for Fun

In a workplace environment with high stakes, increased stress levels and a variety of personal interactions, cultural differences can feel magnified. Things that may have caused mild frustration out of work can easily lead to anger and resentment in the office. These types of attitudes have the potential to bubble over and damage relationships with clients and coworkers.

To counteract this, employees should set aside time to experience the exciting aspects of a new country. Organizations can encourage employees to explore by providing information and updates about fun events, signs and experiences in the area.

Take Advantage of Resources

Whether an employee has yet to arrive in the new country or is in the thick of an assignment abroad, turning to cultural, educational and personal resources can significantly cut back on culture shock. A language course is one of the best options because it gives employees more tools for communication – which can cut back on misunderstandings.

Another helpful strategy is to connect with a person in a similar situation, whether it's another new assignee from a professional's home country or someone who has been an expatriate for years. Talking to someone who has gone through the same transition can give professionals an outlet to vent and talk through issues that neither their new acquaintances nor family and friends from home would understand.

While culture shock will always be present to some degree, addressing the problem head on can go a long way in helping an employee accept cultural differences and thrive in a new country.

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Topics: international relocation

ROI on Sending Employees Abroad

Posted by Shirien Elamawy on Tue, Mar 24, 2015

What’s happening with ROI?

ROI-Part-2-Adelante-Live-blogAccording to a survey conducted by KPMG Global Assignment Policies and Practices 72 percent of 600 international organizations used global mobility programs to reach their business objectives and remain competitive in the global marketplace.

However, only about 12 percent of the companies surveyed understood the need for controlling costs and what constituted a good ROI. In fact, almost 27 percent of those interviewed also admitted not even knowing the exact percentage of transferees who left the company after returning from an assignment. This demonstrates a critical need for better oversight, especially of those employees that make up non-traditional transfers, such as those on short-term engineering assignments.

To learn more about developing an international relocation policy, download our free article.

A recent survey by PricewaterhouseCoopers (PwC) reported that only about 42 percent of the nearly 200 executives who participated believed they were getting a good return for their money. When one considers the fact that fewer than 10 percent of companies surveyed even measure their ROI, and fewer still are able to accurately put a number on the cost, there is the possibility that the return may be greater than they thought.

Generally, those positions generating revenue, such as a senior sales manager, can reasonably expect to offer a higher and faster return against a company’s relocation expenses than from someone in a lesser position.

Factors influencing ROI:

The PwC survey also reported that ROI can vary widely and is impacted by subjective factors including:

  • The type of work performed such as sales, engineering or product development
  • The transferee’s status within the company
  • The amount of risk involved in placing employees overseas, including oversight of permits, visas, tax liability and other concerns, particularly for employees not traditionally mobile, such as team of engineers to fix overseas equipment on a short-term (under six months) basis.
  • The inevitable hidden and often-overlooked costs, such as work permits, that contribute to the problems of cost control and benefits.
  • The expense of transferring an employee overseas is large – in many cases at least twice the employee’s salary – so most companies at least attempt to measure (often without much success) and control some of the expenses.

The takeaway

In spite of the variable returns, 85 percent of PwC respondents cited global mobility as important for the company’s growth with 89 percent indicating plans to continue relocating workers over the next two years. To improve ROI Peter Clarke of PwC and other experts recommend:

  • Improving oversight, especially since the trend seems to be to shorter assignments of less-traditional expat positions.
  • Selecting the right candidate for the assignment
  • Understanding what best motivates potential transferees: career development, especially for younger transferees, seems to be more motivating than a big package of financial perks.
  • Offering tiered systems, such the policies offered by FirstEnergy, to limit the highest costs to the executive salary levels, followed by professional, basic and new-hire plans.

As shown by the latest numbers of the when all parties involved are satisfied with the outcome of the relocation experience, everyone wins.

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Topics: employee relocation concerns, international relocation

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