The following is an excerpt from Jackie Bolen's book The Wealthy English Teacher.
It is with some trepidation that I write this since I am not an international tax expert, nor am I an accountant. I, myself, consult an international tax accountant for anything besides the most basic of questions that I can find answers to on the Internet. However, after many hours searching around on the Internet, I can say with certainty that I have found some excellent sites for you to do your own research, which will certainly be better than the (mis)information that gets spread around the expat bars and online gossip forums with alarming regularity. The best case scenario is that you would have consulted an international tax accountant before you left your home country. The next best option is to spend a few hours doing your own research on the Internet for advice specific to your own country. Here are a few places for you to get started.
Canadians are required to pay Canadian taxes on their international income if they are considered a resident of Canada for that taxation year. The good news is that the tax you pay in the other country gets deducted from your tax bill, provided that Canada and that country have a tax treaty of some sort. There are a number of factors that determine whether or not you are considered a resident of Canada but they have to do with primary and secondary ties, primary ones being something like a house or dependent children and secondary ones being things like membership in professional organizations, health coverage or bank accounts. It is in your best interests to cut as many of these ties as possible in order to ensure you are not considered a resident of Canada during your time abroad. If you leave Canada for only a year or two, do not bother with this, because you will almost always have to pay Canadian taxes on your international income; there is just no way around it. Most of the information I found said that upon leaving Canada, file one final tax return stating that you are leaving Canada on the first page and then do not file again until you return to Canada.
There is some debate about whether or not you should file the form NR-73, which is a nonbinding opinion from the Canadian Revenue Agency about whether or not they would consider you a resident, or not. It seems that most expat “accountants” you meet in the bar say you should, but that most international tax accountants recommend against it. You should make your own decision on this one and I am not going to give you any advice one way or the other.
A quick note about RRSPs (registered retirement savings plans) and TFSAs (tax free savings accounts): Canadian expats are not eligible to invest in them. You might also consider selling them before you leave Canada in order to reduce your secondary ties, but again, consult an international tax accountant for the best advice.
- Canadian Tax Treaties (http://www.fin.gc.ca/treaties-conventions/in_force--eng.asp)
- Determining your Residency Status (http://www.cra-arc.gc.ca/tx/nnrsdnts/cmmn/rsdncy-eng.html)
- Simplified Information from the Canadian Government's Travel Office (http://travel.gc.ca/travelling/living-abroad/taxation)
- Individuals Leaving or Entering Canada and Non-Residents (http://www.cra-arc.gc.ca/tx/nnrsdnts/ndvdls/menu-eng.html)
- Should You File NR-73? (http://thecanadianexpat.com/index.php/members-only/resources/articles/taxes-a-finances/125-taximplications- of-moving-to-the-middle-east)
- Tax Basics for Canadian Expats (http://www.expatica.com/nl/finance/tax/Tax-basics-for-Canadian-expats_101163.html)
- Andrew Hallam-Investing for Canadian Expats (http://andrewhallam.com/category/expat-investing/canadians-expat-investing/)
I have some good news for Americans because unlike Canadians, most teachers abroad will not have to pay American income taxes in addition to the taxes they pay in the country where they are teaching. This is because the US has a tax exemption for about the first $96,000 (it increases yearly) of income earned abroad, if you lived outside the US for 330 days out of the year. Even though you will likely not pay any taxes, it is required that you file a tax return every year.
[You might also like Jackie's article about How to Network Your Way to a University Job In Korea]
One thing that you do need to be cautious about is contributing illegally to your IRA. You should really check out Andrew Hallam's The Expatriate's Guide to Investing and more specifically the section, “Investing for American Expats,” but the gist of it is that you cannot invest in your IRA if you earn less than the tax exempt amount (around $96,000). If you do, it will count as excess contributions and you will face penalties. Again, consult an international tax accountant for all the details and make sure to do your own research to ensure that the information given in these links is accurate and up to date.
- Tax Guide for U.S. Citizens and Resident Aliens Abroad (http://www.irs.gov/publications/p54/)
- Taxes for Americans Living Overseas (http://www.reachtoteachrecruiting.com/us-taxes-for-english-teachers-abroad.html)
- United States Income Tax Treaties (http://www.irs.gov/Businesses/International-Businesses/United-States-Income-Tax-Treaties---A-to-Z)
- American Expat Taxes (https://www.expatriatetaxreturns.com/american-expat-taxes/)
- Roth IRA Rules While Living Abroad (http://rothiraaccountrules.com/roth-ira-rules-while-living-abroad/)
- Andrew Hallam-Investing for American Expats (http://andrewhallam.com/category/expat-investing/americans-expat-investing/)
- Working Overseas (https://www.ato.gov.au/Individuals/International-tax-for-individuals/Going-overseas/Workingoverseas/)
- Income Tax (http://www.expatfocus.com/expatriate-australia-taxation)
- Tax Advice for Expats (http://www.exfin.com/tax-advice-expatriates)
- Andrew Hallam-Investing for Australian Expats (http://andrewhallam.com/category/expat-investing/australians-expat-investing/)
- Tax Residency and Status (http://www.ird.govt.nz/international/residency/)
- Who Needs to File a Tax Return? (http://www.ird.govt.nz/income-tax-individual/filing-your-return/overseas/)
- Tax Treaties (http://www.ird.govt.nz/international/residency/dta/?utm_source=newzealandnow.govt.nz)
- Andrew Hallam-Investing for Kiwi Expats (http://andrewhallam.com/category/expat-investing/new-zealand/)
- Tax When Leaving the UK (http://webarchive.nationalarchives.gov.uk/+/http://www.hmrc.gov.uk/pensioners/taxwhenleaving.htm)
- Tax Laws Clarified for Expatriates (http://www.expatinfodesk.com/news/2011/09/17/uk-tax-laws-clarified-for-british-expatriates/)
- Residency and Domicile (http://britishexpats.com/articles/finance/uk-tax-residency-and-domicile/)
- Andrew Hallam-Investing for British Expats (http://andrewhallam.com/category/expat-investing/british-expat-investing/)
Proviso: Let me repeat that I am not an expert or authority on taxes and you should do your own research or consult a professional to make sure the information I have given is up to date and accurate.
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