Tax Letters: New Non-Canadian Resident Employer CertificationDate: January, 2016
New Non-Canadian Resident Employer Certification
On January 12, 2016, the Canada Revenue Agency (“CRA”) provided guidance on new changes to the withholding tax requirements under Regulation 102 of the Income Tax Act (Canada). The changes are intended to simplify Canadian payroll obligations for non-Canadian employers who send non-Canadian resident employees to work in Canada.
Regulation 102 currently requires every employer that pays salary or other remuneration to a non-resident employee for work performed in Canada to withhold and remit Canadian payroll taxes (i.e. income taxes, Canada Pension Plan or Quebec Pension Plan premiums, and Employment Insurance premiums, when applicable). However, under the terms of most of Canada’s tax treaties, non-Canadian resident employees are generally not subject to Canadian income tax on Canadian source employment income if the amount of remuneration received for work in Canada is below a certain threshold amount, or they are present in Canada for less than 183 days and the remuneration is not borne by a permanent establishment in Canada. If the conditions for the exemption under the tax treaty are met, the non-Canadian resident employer can apply for a Regulation 102 waiver, providing relief from Canadian payroll withholding and remitting obligations.
Form RC473 – The New Application for Non-Resident Employer Certification
The new rules greatly simplify the process for exempting non-Canadian resident employers from withholding and remitting Canadian payroll taxes. To qualify, a non-Canadian resident employer must be resident in a country with which Canada has a tax treaty at the time of payment. Non-Canadian resident employers can apply for eligibility by completing Form RC473 and submitting it to the CRA for approval. Once the application has been approved, the non-Canadian resident employer will be a qualifying non-resident employer and will not need to withhold Canadian payroll taxes from qualifying non-resident employees for up to two years; this will eliminate the need to obtain individual Regulation 102 waivers for each qualifying non-resident employees.
A qualifying non-resident employee is an individual that is a resident in a country with which Canada has a tax treaty and would not be subject to income tax in Canada on Canadian source employment income by virtue of a tax treaty exemption. Additionally, the employee must either work in Canada for less than 45 days in the calendar year that includes the time of payment, or the employee must be present in Canada for less than 90 days in any 12-month period that includes the time of the payment.
If a non-Canadian resident employer has been non-compliant with Canadian payroll tax obligations in the past, it will not be precluded from being eligible for the new certification. However, the certification will not absolve the non-Canadian resident employer from any taxes, interest, and penalties stemming from non-compliance in a prior period.
Obligations of a qualifying non-resident employer
Once a non-Canadian resident employer has been certified, the employer must still:
- Track and record the number of days each qualifying non-resident employee is working or is present in Canada, and the income attributable to these days;
- Determine if the employee is resident in a country with which Canada has a tax treaty;
- Evaluate and document if the qualifying non-resident employee’s remuneration is expected to be exempt from tax in Canada under a tax treaty between Canada and the employee’s country of residence;
- Determine if the qualifying non-resident employee works in Canada for less than 45 days in the calendar year that includes payment or is present in Canada for less than 90 days in any 12-month period that includes payment;
- Obtain a Business Number and, if required to make remittances, a program account number for payroll purposes;
- Complete and file a T4 information return for employees who have provided employment services in Canada, except those employees earning less than $10,000 in Canada; and
- File the applicable Canadian income tax returns for the calendar years under certification.
If the obligations above are not met, the CRA can revoke the certification. The non-Canadian resident employer may then become liable to withhold and remit payroll tax in Canada and may be subject to penalties.
The new rules apply to qualifying non-resident employers with qualifying non-resident employees working in Canada starting January 1, 2016. As a transitional measure, if Form RC473 is filed by March 1, 2016, the CRA has stated that it will retroactively cover qualifying non-resident employees in Canada on January 1, 2016. In all other cases, the CRA has stated that it should receive Form RC473 at least 30 days before the qualifying non-resident employee starts providing services in Canada.
For more information, please contact a member of the Crowe Soberman LLP Tax Group.
This article has been prepared for the general information of our clients. Specific professional advice should be obtained prior to the implementation of any suggestion contained in this article. Please note that this publication should not be considered a substitute for personalized tax advice related to your particular situation.