In the past, foreign entities which sent employees to work in Canada needed to file waivers, under Regulation 102 of the Canadian Income Tax Act (“Act”), in order to avoid being subject to Canadian income tax withholding on foreign employees’ salaries for the time spent working in Canada. This process was tedious, cumbersome and ineffective as most of these employees would be exempt from taxation in Canada anyway by virtue of Canada’s many bilateral tax treaties.
On January 12, 2016, the Canada Revenue Agency released a new form for non-resident employers to apply for certification as qualifying non-resident employers in order to be exempt from Canadian income tax withholding on salaries of qualifying non-resident employees working in Canada.
A qualified non-resident employer is a resident in a country with which Canada has a treaty at the time of payment to the employee and who has been certified by the Minister of National Revenue.
A qualified non-resident employee is an employee who either works in Canada for less than 45 days in the current calendar year which includes the payment date, or is present in Canada for less than 90 days in any 12-month period that includes the payment date, is resident in a country with which Canada has a treaty at the time of payment and is not liable to income tax in Canada on the payment, due to the tax treaty under which the employee is resident.
Form RC473, Application for Non-Resident Employer Certification, must be filed by February 1, 2016 in order for certification to be treated as retroactive to January 1, 2016. If filed after that date, the certification will be granted on a go forward basis upon approval and will be valid for two years. It is advised to file the form at least 30 days before a qualifying non-resident employee starts working in Canada.
The applicant non-resident employer is not required to provide employee details or any travel data; the form mainly serves as a notification to the CRA that the non-resident employer will have non-resident employees working in Canada during the certified period.
Non-resident employers who file Form RC473 with the CRA must comply with the following conditions:
- Track and record, per employee, number of days worked in Canada, days of presence in Canada and the income attributable to the work days in Canada;
- Determine whether its employees meet the conditions of a qualifying non-resident employee;
- Complete and file a T4 Information Return for those employees who have provided services in Canada and whose total income in Canada is greater than $10,000;
- Obtain a Canadian Business Number;
- File the applicable Canadian income tax returns; and
- Upon request, make the books and records available in Canada for inspection by the CRA for the purpose of administering the employer certification agreement and withholding requirements.
Canada Pension Plan contributions are not required if the employer does not have an establishment in Canada.
Employment Insurance premiums are not required if the employee is covered under a similar program in his or her country of residence while working in Canada (FUTA in the USA)
These changes are most welcome by the international tax community, and we strongly suggest completing the Form RC473 and sending it to the address on the form. If your employees will be working in Canada for greater than 45 days, you must continue to prepare Regulation 102 waivers or, alternatively, pay the Canadian income tax withholding on the non-resident’s salary.
Should you require any assistance, please do not hesitate to communicate with us:
Ernest R. Furt, CPA, CA, TEP
Partner, Tax Services
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