Canada: Budget 2015: International Tax - Tackling Administrative Challenges

Last Updated: April 29 2015
Article by Michel M. Ranger

As compared to past federal Budgets, Budget 2015 contained fewer (and arguably less controversial) international tax measures. Nevertheless, Budget 2015 did announce the Government's intention to address taxpayer concerns relating to (i) the withholding obligations borne by non-resident employers that have non-resident employees that work in Canada, and (ii) the reporting obligations of Canadian taxpayers that do not hold sizable amounts of foreign property. These new administrative proposals should be well received by both individuals and businesses.

Non-Resident Employer Withholding Requirements


Generally, non-residents that earn employment income that is attributable to employment duties performed in Canada are subject to Canadian income tax. However, an employee that is resident in a country that has a tax treaty with Canada will often be exempt from Canadian income tax on income from employment duties performed in Canada if certain conditions are met. For example, an individual that is a resident of the US and that is employed by a non-resident employer will generally be exempt from Canadian income tax on his or her remuneration for employment duties performed in Canada where (i) the individual's remuneration in respect of his or her duties performed in Canada does not exceed CAD $10,000, or (ii) the individual is not present in Canada for more than 183 days in any 12-month period and his or her remuneration is not paid by, or on behalf of, a Canadian resident and is not borne by a permanent establishment in Canada. Yet, even where a non-resident's employment remuneration is exempt from Canadian taxation under an applicable tax treaty, the individual's employer, regardless of whether it is resident in Canada, is generally required to withhold amounts on account of the potential Canadian income tax liability of the employee. The non-resident employee is also required to file a Canadian income tax return in respect of such remuneration.

In certain circumstances, an employer may be able to obtain employee-specific waivers from the Canada Revenue Agency (the "CRA") with respect to its withholding and remittance obligations, but the requirements imposed by the waiver application process are often difficult to meet, particularly from a timing perspective, and, as such, obtaining a withholding waiver has generally been viewed as impractical.

Budget 2015: Withholding Relief on the Horizon

Budget 2015 announced the Government's intention to provide an exception to the statutory withholding and remittance requirements that apply in respect of salaries, wages or other remuneration paid by "qualifying non-resident employers" to "qualifying non-resident employees". Under this proposal, a non-resident employee will generally be considered a "qualifying non-resident employee" in respect of a payment if the employee is exempt from Canadian income tax by virtue of being resident at the time of the payment in a country with which Canada has a tax treaty and the non-resident employee is not present in Canada for 90 days or more in any 12-month period that includes the time of the payment. An employer will be considered a "qualifying non-resident employer" at a particular time, provided the following three conditions are met. First, the employer (other than an employer that is a partnership) must be resident in a country with which Canada has a tax treaty. (In the case of an employer that is a partnership, at least 90% of the partnership's income or loss for the fiscal period that includes the time of the payment must be allocated to persons that are resident in a country with which Canada has a tax treaty.) Second, the employer must not carry on business in Canada through a permanent establishment in its fiscal period that includes the time of the payment. Finally, the employer must be "certified" by the Minister of National Revenue (the "Minister") at the time of the payment. In order for an employer to obtain the necessary certification, it must apply to the Minister in prescribed form containing prescribed information, and the Minister must be satisfied that the tests noted above are satisfied, together with such other conditions as the Minister may establish. Certification may be revoked if the employer does not meet the foregoing conditions (which are expected to include a failure to comply with ongoing Canadian tax obligations).

Where the aforementioned conditions are met, a qualifying non-resident employer will not be required to withhold and remit any amounts from remuneration paid to qualifying non-resident employees. However, the employer will continue to be responsible for complying with applicable reporting requirements in connection with the amounts of remuneration paid to such employees (such as filing required T4 information returns), and will continue to be liable for any withholding for employees who do not meet the above-noted conditions. Finally, even if certification is obtained by a non-resident employer, this will not affect the non-resident employer's liability for source withholdings where the conditions that provide relief from source withholding cease to apply, such as where qualifying non-resident employee status is subsequently lost due to the non-resident employee not ultimately being entitled to claim the benefits of a tax treaty or due to changes in circumstances that result in the employee failing to satisfy the less than 90 days in Canada test. In such cases, penalties for failure to withhold will not apply if, after reasonable inquiry, the employer had no reason to believe, at the time of the payment, that the employee did not meet the conditions to be a qualifying non-resident employee.

This measure will apply, when enacted, in respect of payments made after 2015.

While we applaud the long overdue relief provided by this measure, it will be interesting to see what the third requirement for non-resident employer certification will entail – specifically the requirement to meet the "conditions established by the Minister". Similarly, the content of the prescribed form that will be required to be submitted to obtain certification will likely influence the degree to which non-resident employers seek to take advantage of this new measure.

The stated purpose for this measure is the reduction of the administrative burden borne by businesses engaged in cross-border trade and commerce. Hopefully, the CRA will adopt a pragmatic approach to requesting information from non-resident employers. For instance, what type of information will the CRA require to substantiate that a non-resident is entitled to claim the benefits afforded by a treaty that has a "limitation on benefits" clause? Extensive requests for information substantiating eligibility could conceivably inhibit the success of this new measure.

To the extent that the documentation required to obtain certification is onerous, or the reference in Budget 2015 to the need for ongoing compliance with "Canadian tax obligations" to maintain certification is interpreted by non-residents as signaling heightened audit exposure, reliance by non-residents on this new measure may be affected.

Streamlining Reporting Requirements for Foreign Assets

Canadian-resident individuals, corporations, trusts and certain partnerships that, at any time during a year, own "specified foreign property" with an aggregate cost amount in excess of CAD $100,000 are required to file CRA Form T1135, Foreign Income Verification Statement ("Form T1135") with the CRA by the legislated deadline. The Income Tax Act (Canada) defines "specified foreign property" to include most types of income-earning property held outside of Canada, other than certain listed property, including personal property, property used in carrying on an active business and shares in certain foreign affiliates.

In 2013, certain amendments were made to the content of Form T1135 . The revised Form T1135 requires that additional detailed information be provided by a taxpayer with respect to each specified foreign property. This heightened reporting requirement has created a significantly increased compliance burden for some taxpayers.

In order to reduce the compliance burden borne by taxpayers with relatively limited foreign property holdings, Budget 2015 proposes to simplify the Form T1135 reporting requirements for taxation years that begin after 2014. In particular, the Government has proposed a revised Form T1135 (currently under development by the CRA), which will provide that, if the total cost of a taxpayer's specified foreign property is less than CAD $250,000 throughout the year, the taxpayer will be permitted to report such property under a new simplified reporting system. Current reporting requirements will continue to apply to taxpayers with specified foreign property that has a total cost at any time during the year of CAD $250,000 or more.

Update on Tax Planning by Multinational Enterprises

In February 2014, the Government outlined the framework for a proposed domestic rule designed to curb what it viewed to be inappropriate " treaty shopping" in the context of certain transactions involving non-resident parties. On August 29, 2014, the Government announced that it would await the completion of further work by the Organisation for Economic Co-operation and Development (the "OECD") and the G-20 in relation to the OECD's Base Erosion and Profit Shifting ("BEPS") initiative, prior to proceeding unilaterally with the implementation of any domestic legislation. (BEPS generally refers to legal tax planning arrangements undertaken by multinational enterprises that exploit the interaction between domestic and international tax rules to shift profits away from the countries where income-producing activities take place.)

Although Budget 2015 does not propose any specific legislative action relating to BEPS, the Government has indicated that it looks forward to the conclusion of the project and to discussions with the international community on the implementation of its recommendations. The Government reiterated its commitment to proceed in this area in a manner that balances tax integrity and fairness with the competitiveness of Canada's tax system. The Government also recognized that taxes are one of the main factors that drive investment decisions and affirmed its commitment to maintaining Canada's advantage as an attractive destination for business investment.

Update on Automatic Exchange of Information for Tax Purposes

In November 2014, the G-20 countries endorsed a new common reporting standard for automatic information exchange developed by the OECD. Under the new standard, foreign tax authorities will provide information to the CRA relating to financial accounts in their jurisdictions held by Canadian residents. The CRA will, on a reciprocal basis, provide corresponding information to the foreign tax authorities on accounts in Canada held by residents of their jurisdictions.

Canada proposes to implement the common reporting standard starting July 1, 2017, allowing a first exchange of information in 2018. As of July 1, 2017, financial institutions must have procedures in place to identify accounts held by residents of any country other than Canada and to report the required information to the CRA. Financial institutions will not be required to report accounts held by residents of Canada with foreign citizenship.

As the CRA formalizes exchange arrangements with other jurisdictions, upon being satisfied that each jurisdiction has appropriate capacity and information safeguards in place, information will thereafter begin to be exchanged on a reciprocal, bilateral basis.

Draft legislative proposals governing the automatic exchange of information are expected to be released for comment over the coming months.

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2015

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Michel M. Ranger
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.