Footloose and Office-Free? The Financial Reality of the Digital Nomad

In the first few months of the pandemic, the working world split in three. Many office types began an experiment in working from home, bridging the distance with awkward Zoom meetings. A second group, those whose jobs were tied to a physical workplace, layered up in PPE and braved the COVID front lines. And a privileged few pulled up stakes, jumped in a car (or a plane, if they could), and set off for sunnier skies.

Two years on, things are starting to return to something resembling normal. The office workers are back—mostly—with some hybrid arrangements enduring. Retail, restaurant, and front-line workers, if they haven’t quit their industries in frustration, are navigating the new realities.

And the digital nomads? Those who like to boast, “The world is my office”? Well, some have returned to home base, but many (an estimated 35 million) are still roaming the Earth, footloose and office-free. While it may seem idyllic, there are serious financial considerations for those contemplating making “the nomadic life” permanent.

First and foremost is the tax hit some expats take for not playing by the books. The internet is full of stories of digital nomads, in far-flung places like Thailand, who have been working abroad for several years with no Canadian sources of income and few remaining Canadian ties. And yet the Canada Revenue Agency pursues them for years of back taxes, late fees, and interest payments, totalling in the tens of thousands of dollars, if not more.

A digital nomad might no longer consider Canada home, but the CRA often sees things differently. “From a financial standpoint, the first thing to decide is your country of tax residency,” says Julia Chung, co-founder of Spring Planning, financial planners in South Surrey. “To be considered not a tax resident, you have to actually put some effort in.”

While the rules of non-residency seem simple—you live outside Canada for more than 183 days in a given tax year and don’t have significant residential ties—in reality, there are many hoops to jump through to establish (or sever) primary and secondary ties to Canada. And some digital nomads, passing over that threshold, simply forget to do the necessary paperwork.

Digital nomads need to understand what their tax obligations are in Canada, even if you’re paying taxes in another country.

“I had some friends who moved to the Cayman Islands, and lived there for many years and earned money, but never cut ties with Canada and never filed taxes with Canada,” Chung recounts. “Digital nomads need to understand what their tax obligations are in Canada, even if you’re paying taxes in another country.” Even if the country you work in has a tax treaty with Canada, Chung says, you may still need to complete a Canadian return. Canada currently has tax treaties with over 100 other countries, established to avoid double taxation and prevent income-tax evasion.

Another thing to consider—if you plan on playing by the rules—is that some countries are more accommodating to the nomadic worker than others. By one count, there are now almost 50 countries worldwide with some sort of digital nomad visa or temporary residency permit, which allows visitors to live and work remotely for a period of (usually) 12 months, on a renewable basis. Some of these countries require you to pay tax on income, but many do not. Almost all require proof of income (in the form of a current bank statement) to support your expenses while living abroad, along with proof of private health insurance.

For those who have sorted out a visa and are maintaining tax residency in Canada, it’s also important to be clear on what you can and cannot write off while abroad, Chung says. “Sometimes people get carried away, trying to expense airline tickets to Indonesia. Well, was there a business reason for you to go to Indonesia? Or are you just going there because you wanted to?”

Many of the top destinations for digital nomads have become popular because of relatively low barriers to entry: it’s easy to get a visa and cheap to live there. For these reasons, cities such as Tbilisi (Georgia) and Tallinn (Estonia) have seen their stock rise, although with regional instability caused by the war in Ukraine, many who’ve set up shop in eastern Europe might be reconsidering their options.

Whatever external factors draw nomads home, the reality is that the lifestyle tends to have an expiry date. Almost half of digital nomads globally are in their thirties, and as they approach their forties, many are looking to settle down and have a family. Finding housing and schools in a foreign land can be both costly and complicated.

And after two years of isolation, many also want to regain a sense of community. “One of the reasons why people come back is that, travelling from place to place, and not having people there that you care about and who care about you, that gets tired,” Chung says.

Wanderlust is a powerful drug, but so too is the lure of home.

Read more from our Winter 2022 issue.

Post Date:

March 6, 2023