Yesterday afternoon, the Canadian government tabled the 2015
Canadian Federal Budget. Two measures are particularly relevant to
Withholding Relief for Non-Resident Employers and
To take effect next year (if the measure is enacted), Budget
2015 proposes an exemption from certain withholding requirements on
payments from "qualifying non-resident employers" to
"qualifying non-resident employees" in respect of
employment income earned in Canada. At a high-level, this means
that non- Canadian resident employers that are resident in a
country with which Canada has a tax treaty will not have to make
withholdings on account of Canadian income tax on payments made to
a non-resident employee in respect employment services performed in
Canada if the employee (i) is exempt from Canadian income tax in
respect of the payment because of a tax treaty, and (ii) is not in
Canada for 90 or more days in any 12-month period that includes the
time of the applicable payment.
This is a long-overdue measure that will save us the
embarrassment of telling our non-resident and multinational clients
that they are technically required to make the aforementioned
withholdings regardless of how briefly the non-resident employee is
in Canada and regardless that the employee will be exempt from
Canadian tax because of a tax treaty. More importantly, the measure
will ease the administrative burden on non-resident businesses (or
eliminate the unease of intentional non-compliance with the current
technical withholding requirements) and will avoid the prospect of
"double deductions" (home and source country) from an
To qualify for the exemption, the non-resident employer must (i)
not carry on business through a Canadian permanent establishment of
the employer in the relevant fiscal period, and (ii) must make
certain filings to become certified and be so certified at the time
of the applicable payment. Further, non-resident employers will
continue to have reporting obligations with respect to amounts paid
to its employees and, subject to a due diligence defence, will be
liable for withholdings to the extent that the non-resident
employees were not in fact qualifying non-resident employees.
If these measures are enacted, multinational groups may wish to
rethink putting a non-resident employee of a foreign member of the
group onto the payroll of a Canadian member for the period in which
the employee is working in Canada (as is often done to avoid
Canadian filing obligations for the foreign member).
Quarterly Remitter Category for New Employers
Again taking effect next year (if the measure is enacted),
Budget 2015 proposes to decrease the required frequency of
remittances for the smallest new employers by allowing such
employers to immediately remit on a quarterly basis.
Currently, new employers must remit on a monthly basis for at
least one year, after which time they may be eligible to apply for
quarterly remitting if they have an average monthly withholding
amount of less than $3,000 and a perfect compliance record over the
preceding 12 months.
Under the proposed rules, quarterly remittances will be
permitted for new employers with withholdings of less than $1,000
in respect of each month and who maintain a perfect compliance
record in respect of its Canadian tax obligations. The $1,000
withholding threshold corresponds to the withholdings related to
one employee at a salary of up to $43,500, depending on the
province of residence.
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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