What does tax equalisation actually mean for my take-home pay?
It is designed so that the assignment does not change it. The employer deducts a hypothetical home-country tax from your pay, calculated broadly as though you had never moved, and then bears the actual home and host tax on the assignment income. You feel the hypothetical deduction, not the real tax bills. If the host country is expensive the employer absorbs the difference; if it is cheap, the saving belongs to the employer rather than to you. The effect is a flat outcome, deliberately.
Who pays the tax bill under tax equalisation, me or my employer?
The employer, for the tax the policy covers, and that boundary is where most disputes start. Assignment compensation is normally equalised. Personal income has nothing to do with the assignment — investments, rental income, a spouse's earnings — and is usually left with the employee, even though it may sit on the same host-country return and may be pushed into a higher band by the assignment income. Read the policy for what it covers before assuming a bill belongs to someone else.
Why has my employer deducted a tax I do not owe anywhere?
Because the hypothetical deduction is not a tax. Nothing is remitted to an authority under that line; it is an internal charge standing in for the home tax you would have paid had you stayed. The actual tax is paid separately by the employer, in both countries, under their own rules. Two consequences follow. The deduction appears on your pay record but on no assessment, and the final settlement after both returns are filed can move it up or down.
What is a tax equalisation settlement and when do I get one?
Once both countries' returns are filed and the real liabilities are known, the employer compares what you actually bore through hypothetical deductions with what the policy says you should have borne. The difference is settled one way or the other. Because it waits on the later of the two filings, and on any refund the employer is entitled to recover, it often arrives well after the year has closed. That is also why leaving the company before settlement needs to be dealt with in writing.
Does tax equalisation mean I do not have to file a return?
No. The obligation to file is yours in both countries, whatever the policy says about who pays. What equalisation usually changes is who prepares the returns, who pays for them, and who receives the refunds. Refunds are the point worth checking. Where the employer bore the tax, the policy will normally require any refund of it to be passed back, and a refund banked and spent is a difficult conversation. Read that clause before you sign anything that commits it.
Is tax equalisation better for me than tax protection?
They answer different questions. Equalisation fixes your outcome: you bear a hypothetical home tax, never see the real bills, and any windfall from a lightly taxed host goes to the employer. Protection leaves you exposed to the real position and then reimburses you only if the assignment made you worse off, so a lightly taxed host can leave you better off. Equalisation gives predictability and treats a whole population consistently. Protection can pay more, and can pay nothing at all.
Do Canada and the United States share tax information?
Yes, through more than one channel. The treaty has an exchange-of-information article that supports both routine and on-request exchange. Separately, an intergovernmental agreement has Canadian financial institutions identify US-reportable accounts and report them to the CRA, which passes them to the IRS, with the reverse flow for Canadian residents. Most other country pairs use the Common Reporting Standard for the same purpose. See FATCA reporting.
Which country do I pay tax to first?
Generally the source country — where the income arises — taxes first, often by withholding before you receive it. Your country of residence then taxes the same income and credits what the source country took. That order is why timing matters: a residence-country return filed before the source-country tax is settled has nothing to credit yet. Getting the sequence right is most of the work. See international tax planning.
