Definitive Guide to Hiring in Canada

Labor Laws in Canada

The employment laws in Canada are designed to protect the rights of workers. These laws cover topics such as minimum wage, hours of work, overtime pay, and vacation pay.

According to Canada's employment laws, employers must follow all human rights laws and can only judge employees based on their skills and merits. Human rights laws at both the federal and provincial levels say that discrimination and harassment at work are prohibited. Employers may hire those under 17 years old in federally regulated industries.

All employees in Canada are covered under the employment standards legislation. Federal jurisdiction applies to certain companies, such as airlines and railways, and to inter-jurisdictional transportation and communication companies.

In Canada labor law, taxes, benefits, etc. vary between provinces. However, many employment laws in Canada fall under the country's federal legislation. Federal legislation is what is featured in this hiring guide. We recommend using an Employer of Record to help navigate provinces and federal employment compliance.

Employment Contracts in Canada

1. Fixed-term contract

   The relationship between the employer and employee exists for a specified period. There is no notice or pay-in-lieu required when the term ends.

2. Indefinite-term or open-ended contract

   This is given to employees with a permanent status under a company. If ended without cause, employees are entitled to a notice of termination.

3. Probation period employment contract

   This contract is for employees under a three-month (3) trial period. During this period, employers may terminate the agreement without notice or pay as long as the reasons do not contravene the laws regarding discrimination.

4. Independent contractor agreements

   These are contracts established for freelancers or self-employed for the duration of a specified project. The applicable employment standards legislation does not cover it.

Canada Salary Ranges

Lowest average wage

• The lowest average salary in Canada is around CAD 30,200 per year

Average salary Canada

• The average salary is CAD 75,000 per year.

Highest average wage

• Canada’s highest average salary is CAD 534,000 per year .

Canada Minimum Wage

Income Tax in Canada

• Individuals resident in Canada are subject to Canadian income tax on worldwide income.
• Relief from double taxation is provided through Canada's international tax treaties, as well as via foreign tax credits and deductions for foreign taxes paid on income derived from non-Canadian sources.
• Non-resident individuals are subject to Canadian income tax on income from employment in Canada, income from carrying on a business in Canada and capital gains from the disposition of taxable Canadian property.
• Individuals resident in Canada for only part of a year are taxable in Canada on worldwide income only for the period during which they were resident.
• Personal tax credits, miscellaneous tax credits, and the dividend tax credit are subtracted from tax to determine the federal tax liability

Federal tax rates for 2022

A person who lives in or earns money in any province or territory is also subject to provincial or territorial income tax. This is on top of federal income tax. Except for Quebec, provincial and territorial taxes are calculated on the federal tax return and collected by the federal government.

Federal, provincial, and territorial taxable income does not take provincial and territorial taxes into account. Recognizing that Quebec collects its own tax, federal income tax is reduced by 16.5% for Quebec residents.

Instead of provincial or territorial tax, non-residents pay an additional 48% of the basic federal tax on income taxable in Canada that is not earned in a province or territory. Employment income and business income from a permanent establishment (PE) in the province or territory must be taxed at provincial or territorial rates by people who don't live there. Different rates may apply to non-residents in other circumstances.

Social Security in Canada

Personal Deductions

• Deductible non-business expenses include alimony and maintenance payments (if taxable to the recipient), certain child care expenses, and eligible moving expenses for relocation within Canada (usually in connection with a change of employment).
• Periodic alimony payments made by a taxpayer under a divorce decree (or under the terms of a written divorce or separation agreement) to a former or separated spouse (or for the spouse's benefit) are generally deductible, subject to restrictions as to the precise nature of these payments.
• Neither alimony nor child support is subject to WHT if paid to a non-resident.
• Canada allows working parents to deduct child-care expenses if certain conditions are met.
• The maximum yearly deduction is generally $8,000 per child under seven years old and $5,000 per child from seven to 16 years old.

Interest Deductions

• Generally, you can deduct the interest on money you borrow to purchase an investment property or to start a business.
• Personal loan interest is not deductible for tax purposes. This includes mortgage interest paid on a loan used to purchase a residence for personal use.

Business Deductions

• Business deductions for self-employed individuals generally include all reasonable expenses that have been incurred to earn business income.
• A self-employed individual can also deduct expenses for the business use of a work space in the individual's home, if the home is the individual's principal place of business, or the individual uses the work space only to earn business income and it is used on a regular and ongoing basis to meet business clients, customers, or patients.
• Home expenses that may be deducted include utilities, home insurance, property taxes, mortgage interest, and capital cost allowance.

Intracompany Transferees Exemption

The exemption for intracompany transferees is designed to facilitate the transfer of “executive,” “senior or functional managerial” and “specialized knowledge” personnel from companies affiliated with those established in Canada. The applicant must be employed by the foreign related company for at least one year in the three years preceding the transfer, and must come to Canada to take a similar role in a “senior management,” “executive” or “specialized knowledge” position.

The Global Talent Stream

Foreign workers employed in lower-skilled and lower-wage occupations have greater restrictions on their ability to work in Canada or apply for permanent residence. The Global Talent Stream, which is a subset of the Temporary Foreign Worker Program, allows innovative firms in Canada a more streamlined process to hire highly skilled foreign talent when Canadians are not available.

In June 2017, the Canadian federal government launched the Global Skills Strategy (GSS) to support faster access to high-skilled talent in Canada and to help Canadian businesses support the creation of jobs for Canadians.

Canadian Work Permits

There are two types of work permits: open work permits and employer-specific work permits. Visa processing times vary depending on the type of work permit.

Open Work Permit

An open work permit allows you to work for any employer in Canada, except for an employer who is listed as ineligible on the list of employers who have failed to comply with the conditions, or who regularly offers striptease, erotic dance, escort services or erotic massages.

You may be eligible for an open work permit if:

• You are an international student and are eligible for the Post-Graduation Work Permit Program
• You are a student who’s no longer able to meet the costs of your studies (destitute student)
• You have an employer-specific work permit and are being abused or at risk of being abused in relation to your job in Canada
• You applied for permanent residence in Canada
• You are a dependent family member of someone who applied for permanent residence
• You are the spouse or common-law partner of a skilled worker or international student
• You are the spouse or common-law partner of an applicant of the Atlantic Immigration Pilot Program
• You are a refugee, refugee claimant, protected person or their family member
• You are under an unenforceable removal order
• You are a temporary resident permit holder
• You are a young worker participating in special programs

Employer Specific Work Permits

An employer-specific work permit allows you to work according to the conditions on your work permit, which include:

• the name of the employer you can work for
• how long you can work
• the location where you can work (if applicable)

Other Types of Work Permits

Some of the main categories of work permits are for Professionals, Intra-company transferees, and Temporary resident permit holders. You can only apply for a work permit from inside Canada if:

• you, your spouse or parents have a valid study or work permit,
• you have a work permit for one job but want to apply for a work permit for a different job,
• you have a temporary resident permit that is valid for six months or more, or
• you are in Canada because you have already applied for permanent residence from inside Canada. You will have to pass certain stages in the main application process before you can be eligible for a work permit.

Goods and Services Tax (GST)

The GST is a federal tax levied at a rate of 5% on the supply of most goods and services made in Canada. The tax does not apply to supplies that are zero-rated (i.e. taxed at 0%) or exempt.

Generally, registrants charge GST on their sales and pay GST on their purchases, and either remit or claim a refund for the amount of net tax reported (i.e. the difference between the GST charged and the GST paid). Suppliers are entitled to claim input tax credits for the GST paid or payable on expenses incurred relating to making fully taxable and zero-rated supplies (i.e. commercial activity), but not on expenses relating to the making of tax-exempt supplies.

Harmonised Sales Tax (HST)

• Five provinces in Canada have fully harmonised their sales tax systems with the GST and impose a single HST, which includes the 5% GST and a provincial component.
• HST applies to the same tax base and under the same rules as the GST.
• There is no need to register separately for GST and HST because both taxes are accounted for under one tax return and are jointly administered by the Canada Revenue Agency (CRA).
• The HST rates are 15%.

Provincial Retail Sales Tax (PST)

The provinces of British Columbia, Manitoba, and Saskatchewan each levy a PST (in addition to the 5% GST) at 7%, 7%, and 6%, respectively, on most purchases of tangible personal property, software, and certain services.

PST generally does not apply to purchases of taxable goods, software, and services acquired for resale; registered vendors can claim this resale exemption by providing to their suppliers either their PST number or a purchase exemption certificate. Certain exemptions also exist for use in manufacturing, farming, and fisheries.

Quebec’s sales tax is a VAT structured in the same manner as the GST/HST. The QST is charged in addition to the 5% GST and is levied at the rate of 9.975% on the supply of most property and services made in the province of Quebec, resulting in an effective combined rate of 14.975%.

Withholding Tax in Canada

WHT is charged at a rate of 25% on interest (except for most interest paid to arm's-length nonresidents), dividends, rents, royalties, certain management and technical service fees, and other similar payments made by a Canadian resident to a non-resident of Canada. Canada is constantly renegotiating and expanding its treaty network, some of which have effects that are retroactive in nature.

WHT is not levied in Canada on interest paid or credited to arm's-length non-residents (except for 'participating debt interest'). Most treaties expressly provide for higher WHT on interest in excess of FMV in non-arm's-length situations.

Copyright royalties and payments for a literary, dramatic, musical, or other artistic work (but not royalties for motion picture films, work on film or videotape, or other means of reproduction for use in television), and/or royalties for computer software, a patent, information concerning industrial, commercial, or scientific experience (but not royalties for a rental or franchise agreement), or broadcasting are generally subject to a zero royalty rate. In non-length arm's situations, most treaties explicitly provide for higher WHT on royalties in excess of FMV.

In some cases, a tax rate of zero may apply. The treaty was signed, but it is not yet in effect. Canada imposes a maximum WHT rate of 25% on dividends, interest, and royalties in the absence of a treaty.

Dividends

Dividends paid by a Canadian resident corporation to a nonresident are subject to a 25% tax, unless the rate is reduced under a tax treaty

Interest

Interest paid by a Canadian resident to a nonresident generally is subject to a 25% tax, unless the rate is reduced under a tax treaty. Certain exemptions may apply, including an exemption for nonparticipating interest paid to arm’s length foreign lenders.

Royalties

Royalties paid by a Canadian resident to a nonresident are subject to a 25% withholding tax, unless the rate is reduced under a tax treaty. Copyright payments made in respect of literary, dramatic, musical or artistic works are exempt from withholding tax under domestic law

Technical Service Fees

Depending on the facts, certain technical service fees may be subject to a 25% withholding tax.

Branch Remittance Tax

A 25% branch profits tax is levied, unless the rate is reduced under a tax treaty.

Withholding tax overview

Tax Filing Deadlines in Canada

In Canada, people have until June 15 to file their income tax returns. Self-employed or business owners have until April 30 to file their taxes. This new deadline also applies to partners and coworkers of people earning less than $80,000 per year. Penalties and interest are imposed if a tax is not paid on time. Unpaid income taxes must be paid by April 30th of the following tax year.

Tax Installments for Individuals in Canada

Individuals may be required to make quarterly installment payments if the difference between tax payable and the amount withheld at source is greater than $3,000 (for Quebec residents, $1,800 of federal tax payable after federal withholding) in both the current year and either of the two preceding years. The amount of the quarterly installments is based on the lesser of the liability calculated by the tax authorities on installment notices, the liability for the preceding year or the liability projected for the current year after deduction of withholdings.

Global Expansion’s EOR and international PEO solutions can help you run payroll in Canada with ease. In just a few clicks, your employees will be onboarded and enrolled in our payroll system. Additionally, we can invoice clients locally, meaning we can enroll any new hire quickly and efficiently, whether they're an expatriate or a local national.

Our Role

Global Expansion’s International EOR and Global PEO solution can help you run payroll in Canada with ease. We will not only ensure accurate payroll administration but also ensure regulatory compliance. Hence, this will save you the time and money needed to understand income tax and employment laws and regulations. In just a few clicks, your employees will be onboarded and enrolled into our payroll system in a seamless manner. Additionally, we can invoice for clients locally, i.e. we can enroll any new employee quickly and efficiently, regardless of whether they are an expatriate or a Canadian resident.