Do we stop Canadian deductions when an employee moves abroad?
Not as a matter of course. Whether Canadian withholding continues depends on the employee's residency status, which is a factual determination rather than a consequence of boarding a plane, and on what the host country claims on the same remuneration. Someone who remains resident here generally stays inside the Canadian system while also coming inside the host country's, because host-country payroll usually begins with the first day of work there. Switching the Canadian deductions off on the departure date, before the residency question has been settled, is the error we are most often asked to correct. The determination comes first; the payroll instruction follows from it.
What is shadow payroll and do we actually need it?
Shadow payroll is a parallel payroll record kept in one country for an employee whose salary runs through the other, so both systems report the same remuneration for the same periods. Nothing is disbursed from it; it exists to compute and to report. You need it whenever both countries have a claim on the same employment income at the same time, which is the normal position for an assignment where the employee remains resident here and works there. Without it, two payroll teams derive their own figures from their own records and the totals diverge — and the divergence is what an examination finds. One set of numbers, two reports.
Does host-country payroll start on the first day of the assignment?
Usually, yes. Host-country obligations tend to begin with the first day of work there, which is earlier than employers expect and earlier than any treaty analysis is typically finished. That is why the sequence matters: the registration and the mechanics need to be in place before the employee travels, even where the eventual tax position is that little or nothing is payable locally. The alternative is a run of workdays with an obligation accruing and nothing set up to meet it. Meanwhile the Canadian obligations do not switch themselves off, so the planning question is how both payrolls will be operated from the first week, not whether.
Why do our two payrolls report different totals for the same employee?
Because each was built from its own records. The host payroll usually starts from local gross and local pay periods; the home payroll carries the contract, the benefits, any equity and the allowances, and the two rarely agree on what is included or on which period something falls in. Housing, tax equalisation, relocation costs and a bonus received following the move are the usual culprits. The remedy is structural rather than arithmetical: one allocation of remuneration to periods and countries, agreed once, from which both reports are derived. That is what shadow payroll is for, and reconciling the two at the year end without it is considerably harder.
Does the employee's residency status change what we have to withhold?
It is the first thing that decides it. Residency is determined on facts — where the home, the family and the ties are, not merely where the workdays fall — and it governs whether the employee remains inside the Canadian system on worldwide remuneration or comes within it only on what is connected here. The host country runs its own test on its own criteria, and both can answer yes for a period. Because the withholding instruction depends on the determination, the determination is made and documented before the assignment starts, and revisited if the facts change. An assumption recorded nowhere is the thing that unravels later.
Who reports a bonus received following the move abroad?
Both systems may, and the answer turns on when it was earned rather than when it reached the employee. A bonus that accrued over a period worked here, received after the employee began working abroad, is generally sourced to the period and the place of work it relates to, which means it can be split. The host country will look at the same sum and apply its own sourcing rule, and the two rules do not always agree. What keeps this manageable is deciding the allocation once, on the basis of the earning period, and having both payrolls report from that single allocation — which is exactly the job shadow payroll does.
Do expats pay state taxes?
Sometimes — leaving the country does not automatically end a US state's claim. States apply their own domicile tests, and several are slow to accept that domicile has moved while a home, licence, registration or voter record stays behind. A few states have no income tax at all, which removes the question. The federal exclusions do not bind a state, so state exposure has to be reviewed separately from the 1040. See state residency and domicile.
How do I report a foreign pension on a US return?
As pension income, gross, with foreign tax available as a credit. Two extra layers catch people out. A treaty position on the pension may need to be taken and disclosed in its own right. And the plan itself can be a reportable foreign financial asset, sometimes with a further reporting regime if it is treated as a foreign trust — obligations keyed to holding the plan, not to drawing from it. Which layers apply depends on the country and the plan type. See the pensions and annuities article.
