On June 30, 2014, officials with the Canada Border Services
Agency and the U.S. Department of Homeland Security commenced a
cross-border information exchange initiative, whereby certain
information on individuals crossing the border will now be shared
between the countries' border officials. Included in this
shared information will be biographical data and the number of days
spent in each country, which may be used by each country's
governmental departments to ensure compliance with, among other
things, income tax, immigration and health care regulations.
With respect to income tax rules impacting U.S. individuals and
businesses working and/or operating in Canada, it stands to reason
that the shared border-crossing information may be used by the
Canada Revenue Agency (CRA) to ensure compliance with the relevant
withholding tax obligations discussed below.
1. Regulation 105
Under Regulation 105 of the Income Tax Act
(Canada), anyone paying an amount to U.S. persons (individual
or corporate) for the rendering of services in Canada is required
to withhold and remit 15 per cent of that amount to the CRA. If the
services were rendered in the province of Quebec, an additional 9
per cent must be withheld and remitted to the Minister of Revenue
The requisite withholding discussed above represents a payment
on account of the U.S. person's Canadian income tax liability.
Where the U.S. person can demonstrate that their actual Canadian
income tax liability is less than the amount withheld (such as by
claiming protection under the Canada-U.S. Tax Treaty), they may
obtain a reduction of the withholdings by filing for a waiver.
Otherwise, a refund of withholding taxes may be obtained by filing
a treaty-based tax return.
Due to the new cross-border information exchange initiative, the
CRA may be able to track the movements of U.S. persons entering
Canada to render services and verify if the 15 per cent withholding
under Regulation 105 has been completed. The CRA may assess
penalties and interest to the Canadian payor when its obligations
under Regulation 105 have not been met.
2. Regulation 102
If a U.S. employer has U.S. employees working in Canada,
Regulation 102 of the Income Tax Act requires them to
withhold payroll source deductions from the employees'
paycheques with respect to their time spent working in Canada
unless a waiver is obtained from the CRA. The requisite
withholdings are the same deductions that the U.S. employer must
address for its Canadian resident employees: income taxes, Canada
Pension Plan contributions and Employment Insurance premiums
(though the latter two may be eliminated altogether, depending upon
the specific facts, in the case of U.S. employees).
The cross-border information exchange initiative may allow the
CRA to track the number of days that U.S. employees spend in Canada
working and, therefore, track the employer's obligations under
Regulation 102. In addition to the employer burden, each U.S.
resident employee may be required to file a Canadian individual
income tax return, depending on the circumstances.
If applicable, and if you have not met the rules under
Regulations 102 and/or 105 for prior years (including filing the
requisite tax returns), you may be able to catch up on late filings
under the CRA's Voluntary Disclosures Program (VDP).
Provided certain conditions are satisfied, the VDP allows taxpayers
to meet their obligations for up to the 10 most recent fiscal years
while avoiding the associated penalties.
If you purchase non-resident services rendered in Canada, or you
are a non-resident operating in Canada, we strongly recommend that
you consult a Collins Barrow tax professional to ensure compliance
with these rules.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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