- Citrome, Ted N.
- Industry Alerts
Proposed amendments to the Income Tax Act (Canada) (ITA) will provide relief from Canadian payroll withholdings for many non-resident employers whose employees work in Canada on a temporary or short-term basis.
An employee who is a non-resident of Canada is generally subject to Canadian income tax on remuneration that he or she receives in respect of work performed while physically present in Canada. However, salary paid to an employee who is resident in the U.S. is generally exempt from Canadian tax under the Canada-U.S. Tax Convention (Treaty) if either: (a) the amount paid in respect of Canadian employment is less than C$10,000 in the year; or (b) the employee was present in Canada for less than 183 days in any 12-month period that includes the year, and the amount was not paid or borne by a Canadian resident or a Canadian permanent establishment.
Currently, employers are required to withhold Canadian payroll tax from all remuneration paid to employees, including amounts that are ultimately exempt under a tax treaty, unless a waiver is obtained from the Canada Revenue Agency before the work commences. However, obtaining a waiver is often impractical due to processing times. Consequently, employees earning treaty-exempt income are forced to wait until the end of the year and file a Canadian income tax return to claim a refund. This system is particularly arduous for employees who are already subject to U.S. payroll deductions.
The new rules will streamline the procedure for relieving U.S.-resident employers from many Canadian payroll remittance obligations. By filing an application to be certified as a “qualifying non-resident employer”, an employer that is resident in a country with which Canada has a tax treaty will be excluded from payroll withholding requirements from salary paid to an employee who:
- is resident in a country with which Canada has a tax treaty;
- is not liable for Canadian income tax because of the application of that treaty; and
- works in Canada for less than 45 days in the calendar year, or is present in Canada for less than 90 days in any 12-month period that includes the relevant time.
The new system allows eligible employers to obtain relief from Canadian payroll remittance obligations by filing one application form instead of having to apply for a separate waiver in respect of each cross-border engagement. A new certification is typically required after two years.
It is notable that a U.S. limited-liability corporation may not qualify for this relief under the CRA’s long-standing administrative position that a LLC is not resident in the U.S. for purposes of the Treaty.
This client alert is published by Dickinson Wright LLP to inform our clients and friends of important developments in the field of tax law . The content is informational only and does not constitute legal or professional advice. We encourage you to consult a Dickinson Wright lawyer if you have specific questions or concerns relating to any of the topics covered in here.
FOR MORE INFORMATION CONTACT:
Ted N. Citrome is Of Counsel in Dickinson Wright’s Toronto Office and can be reached at 416.646.4609 or firstname.lastname@example.org
For a printable version of this tax client alert, click here.
- December 2018 Industry Alerts Tax Court Rules Against Cannabis Dispensary
- October 2018 Industry Alerts Treasury Releases Proposed Regulations on Opportunity Zones
- October 12, 2018 Media Mentions Lawyer Ted Citrome Quoted in Lexpert Article on "Canadian Firms at Risk for US Taxes"
- October 9, 2018 Webinars Property Tax Assessments -- How to Maintain Positive Cash Flow After Period of Economic Growth Webinar on October 9, 2018
- August 6-7, 2018 Seminars NBI Seminar: LLCs From Start to Finish August 6-7, 2018
- July 11, 2018 In the News Derek Kaczmarek Elected Chair of State Bar of Arizona's Section of Taxation
- June 26, 2018 In the News Giselle C. Alexander Named Certified Attorney Specializing in Tax Law
- May 17, 2018 In the News Attorney Giselle Alexander Named ABA Tax Section Nolan Fellow for 2018-2019
- April 12, 2018 Industry Alerts Treasury and IRS announce designation of Opportunity Zones for 18 States