Tax & Trade Blog
Sending Employees to Canada?
As a general rule, non-resident employers who send their employees to Canada to perform various tasks for them are required to withhold tax in respect of the employees earnings while in Canada, and remit same to the Canada Revenue Agency (CRA). Employees, are then required to file Canadian income tax returns to recover those taxes, if meeting certain tax treaty tests for determining taxability of those earnings in Canada.
Perhaps not surprisingly, these rules have made sending US employees to Canada an extremely cumbersome process for US employers, with full technical compliance with these rules perhaps honored more in the breach that the observance.
Thankfully, the CRA has instituted a brand new program addressing this situation, aimed at certifying non-resident employers, and then allowing a stream-lined process for sending US employees to Canada. The program will apply for all payments made to US employees after 2015, and offers possible relief from the withholding tax requirements referred to above, upon certification.
In order to qualify for this special Certification, the following conditions need to be met:
- Resident of Tax Treaty Country – The non-resident employer must be resident in a country with which Canada has a tax treaty at the time of the payment. This will be satisfied by all US resident corporate employers. Special rules apply for partnerships.
- No Permanent Establishment in Canada – The non-resident cannot carry on business in Canada through a permanent establishment. Check with your tax advisor, or contact Millar Kreklewetz LLP if you need assistance determining if you are operating in Canada through a “permanent establishment” as there are a number of special rules applying to this determination.
- Employee Qualification – The non-resident employer must ensure that each employee sent to Canada meets the following qualifications:
- The employee must be resident in a country with which Canada has a tax treaty at the time of the payment. Again, a US resident employee will qualify for this condition.
- The employee must not be liable to tax on the payment because of a provision in the tax treaty. (This will require a review of the provisions of the applicable tax treaty, and possible advice.)
- The employee must not be present in Canada for over 89 days in any 12 month Calendar period that includes the date of the particular payment. (This will require, as set out further below, detailed tracking of employee time in Canada by the US employer).
- Additional Conditions – The non-resident employer must agree to each of the following terms:
- The non-resident must evaluate and document how the employee meets the program requirements (specified below) at the time employment income is paid;
- The non-resident must track and document the number of days the employee is working or is present in Canada and track the employment income that corresponds to these days;
- The non-resident must apply for and receive a Canadian Business Number from the CRA;
- The non-resident must prepare and file a T4 slip and a T4 Summary for the employee, if required;
- The non-resident must file Canadian income tax returns for calendar years covered by the certification period; and
- The non-resident must, when requested, make books and records available in Canada for the CRA to inspect.
Certification may be applied for by submitting an Employer Certification Form (RC473) to CRA. Please call or write us for assistance in preparing this form.
If approved, the CRA will provide Notice of Certification, which will typically be valid for two years.
Note that all applications received by CRA by end of day February 1, 2016 will be considered for a retroactive effective date of January 1, 2016.
Also note that the Certification program does not affect Canada Pension Plan or Employment Insurance premiums paid by non-resident employers; however, current exemptions may already be available.
* The Non-resident Employer Certification draft legislation was introduced in the 2015 budget but has not yet been passed into law. Nevertheless, the legislation is expected to be reintroduced and enacted. CRA confirmed certification details in January 2016.