The federal government's Budget 2015, introduced April 21,
2015, proposed an exemption that will offer some relief to
non-resident employers with respect to withholding taxes on amounts
paid to non-resident employees working in Canada. The exemption is
to be effective January 1, 2016.
At present, employers (whether resident in Canada or not) are
required to withhold amounts on account of the income tax liability
of their employees performing services in Canada (whether the
employees are residents of Canada or not). This is the case even
where one of Canada's tax treaties applies to exempt a
non-Canadian resident employee from Canadian tax on his or her
employment income, unless a formal waiver is obtained ahead of
time. Because it is not always practical to obtain a waiver, many
times the employer will withhold and remit Canadian taxes and the
employee will have to file a Canadian tax return to claim, based on
the treaty exemption, the taxes withheld. This process can be
Circumstances such as these are fairly common. Under the
Canada-United States treaty, for example, a US-resident employee
will generally be exempt from Canadian tax if she remains in Canada
for no more than 183 days in a 12-month period and if her salary is
not borne by a Canadian resident or by a permanent establishment of
her employer in Canada.
The administrative burden of the current regime on non-resident
entities doing business in Canada is already significant. As noted
above, waivers can sometimes be obtained on an employee-by-employee
basis, but this system is highly inefficient. The result is that
professional fees can exceed the amounts which must be withheld
from employees. The proposed relief is aimed at eliminating some of
these inefficiencies in the most clear-cut cases.
Under these new rules, a "qualifying employer" will
not be required to withhold amounts from the income earned in
Canada by a "qualifying employee". To qualify:
(1) the employee must be exempt from Canadian tax under a
(3) the employer must be resident in a jurisdiction that has a
tax treaty with Canada
(2) the employee cannot be in Canada for 90 days or more in any
12-month period that includes the time of payment
(4) the employer must not carry on business through a permanent
establishment in Canada
(5) the employer must be certified by the Minister
It appears that the certification required from the Minister
will be largely a formality if the employer meets the other
conditions for qualification.
The exemption from withholding will not affect any reporting
obligations of the employer with regard to amounts paid to its
employees. Nor will the exemption affect withholding for employees
who are in Canada for 90 days or more in a 12-month period, but are
nevertheless exempt from Canadian income tax.
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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