Canada: Limited But Welcome Relief For The Cross-Border Employee

The 2015 federal Budget included a proposal to reduce the compliance burden of sending non-resident employees to work in Canada for short durations as of Jan. 1, 2016. While the proposal is welcome, the measures are somewhat limited and may not provide relief in all circumstances, including some fairly common scenarios.

Current State of Affairs

Under the Income Tax Act (Canada) (the “ITA”), an employee who is a non-resident of Canada is liable for tax on income from employment exercised in Canada, subject to exemption under an applicable tax treaty. The person paying the remuneration to such an employee (the “Employer”), whether a resident or a non-resident of Canada, is liable to withhold and remit to the Canada Revenue Agency (“CRA”) a prescribed amount on account of the tax liability of the non-resident employee pursuant to section 102 of the regulations made under the ITA (“Reg 102 withholding”).  Reg 102 withholding applies regardless of whether the employee may ultimately benefit from an exemption from tax under the ITA by virtue of the application of Canada’s bilateral income tax treaty with the employee’s home jurisdiction (a “Treaty”).  There is also no floor below which the Reg 102 withholding does not apply. The result is an administrative burden, as well as the potential for the employee’s wages to be subject to double withholding: once in the home jurisdiction and once in Canada.

Where the employee is entitled under a Treaty to an exemption from Canadian income tax on the income from employment exercised in Canada, the employee may file a tax return with the CRA after the end of the year and claim a refund of the tax withheld and remitted by the Employer. Alternatively, the employee and the employer may apply to the CRA for a waiver of the Reg 102 withholding based on the entitlement to Treaty benefits. While the waiver relieves the potential for double withholding, the waiver process is time-consuming and inefficient (each waiver is for a specific employee and for a specific time period). Further, the issuance by the CRA of a waiver does not necessarily negate the obligation for the employee to file a Canadian income tax return.

The Proposal

The Economic Action Plan 2015 proposes to provide, as of 2016, an exemption from the withholding requirement discussed above for qualifying non-resident employers in respect of payments made to qualifying non-resident employees who will benefit from the application of a Treaty.

An employee will be a qualifying non-resident employee if the employee is:

  • exempt from Canadian income tax in respect of the payment because of a Treaty; and
  • not present in Canada (working and holidays) for 90 or more days in any 12-month period that includes the time of the payment.

An employer will be a qualifying non-resident employer if:

  • the employer is resident in a Treaty country (or, where the employer is a partnership, at least 90% of the partnership’s income for the fiscal period that includes the time of the payment to the employee is allocated to persons that are resident in a Treaty country);
  • the employer does not carry on business through a permanent establishment (“PE”) in Canada (as defined in the ITA regulations) in its taxation year (or fiscal period) that includes the time of the payment; and
  • the employer is certified by the Minister of National Revenue at the time of the payment.

The certification process has yet to be defined by the government. However, it appears that certification will require prescribed information, will be time limited and thus require re-certification, and will be revocable.

Where these conditions are satisfied, the Employer will not be obligated to effect Reg 102 withholding in respect of payments to qualifying non-resident employees.  However, the Employer will still be obliged to issue and file T4 reporting slips after the end of the year and the non-resident employees may still be required to file Canadian income tax returns after the end of the year.

Benefits and Observations

The proposal represents a significant step forward for employees who are sent to Canada for extremely short durations.  Technically, the Reg 102 withholding obligation applies to an employee sent to Canada for one day, which would “catch” employees travelling to Canada for meetings or projects of short duration. The absence of a de minimis rule has likely resulted in intentional or unintentional non-compliance with Reg 102. Going forward, such visits should be exempted from the Reg 102 withholding, although qualifying non-resident employers will have to track their employees’ days of travel to Canada, for business and for pleasure, to ensure the 90-day limit is not surpassed.

As to the 90-day limit, it is not clear why the government chose to impose a 90-day presence restriction in defining an “eligible non-resident employee”. Most of Canada’s Treaties provide an exemption from tax under the ITA provided that the employee is resident in the Treaty country and the employee is not present in Canada for a period or periods exceeding 183 days in any 12-month period. An otherwise qualifying non-resident employee who is present in Canada for 91 days would continue to satisfy the test for Treaty exemption. Further, where the 90-day limit is surpassed it is not clear whether the requirement to comply with Reg 102 would commence with the 91st day of presence or retroactively to the 1st day of presence but perhaps with a broadened ability to rely on the existing waiver process.

It is also of note that the proposal did not include a blanket exemption for a non-resident employee who is entitled to the de minimis CAD$10,000 exemption found in most Treaties, regardless of whether the employer satisfies the text for a “qualifying non-resident employer”.

Whether a non-resident employer will be a qualifying non-resident employer is based in part on whether it carries on business through a PE in Canada.  Interestingly, the existence of a PE is to be determined by reference to the ITA regulations rather than the definition contained in Canada’s Treaties. The differences between the two definitions may produce anomalous results, including that the employer may not satisfy the test for a “qualifying non-resident employer” (and thus not be relieved of the Reg 102 withholding obligation) even though the employee would be entitled to a full Treaty exemption. It remains to be seen whether the government will modify the proposal to refer to the definition of PE in the applicable Treaty.

It will be interesting to review the information that the government will request from an employer in the certification process.  Often when a non-resident sends employees to Canada there is a concern that the employer could be found to be carrying on business in Canada for purposes of the ITA, either under a common law test or under the deeming rule that applies when a non-resident solicits orders or offers anything for sale in Canada through an agent or servant. If found to be carrying on business in Canada, the non-resident becomes obliged to file a Canadian tax return, even if the non-resident does not carry on business through a PE situated in Canada under a relevant Treaty. Accordingly, the certification process may prove to be an early test of whether the CRA agrees with the non-resident employer that it is not carrying on business in Canada.  Further, the certification process may occur at a point in time when the non-resident employer believes it will not have a PE in Canada but evolving business conditions cause it to acquire a PE in the future. It is unclear what penalties the non-resident employer might be exposed to.

The proposal also does not provide relief from the reporting requirements. A qualifying non-resident employer will still have to issue T4 reporting slips to each qualifying non-resident employee. One wonders whether the employer certification process could be designed to provide sufficient assurance to the CRA such that the subsequent reporting, of amounts not subject to tax under the ITA, could be eliminated.

Finally, it is important to note that the proposal will not apply to most secondment arrangements involving non-resident employees. A secondment arrangement involves the “lending” of a non-resident employee by a non-resident employer (the “Lending Employer”) to a Canadian-resident entity (the “Borrowing Employer”) that will employ the non-resident to perform services in Canada for the Borrowing Employer. The Borrowing Employer may be an affiliate of the Lending Employer. The arrangement is principally intended to protect the Lending Employer from being found to be carrying on business in Canada for purposes of the ITA as discussed above.  The arrangement also relives the Lending Employer from having to comply with Canadian withholding obligations. In a secondment arrangement, the non-resident employee is typically paid by the Borrowing Employer or it reimburses the Lending Employer. The Borrowing Employer typically assumes the Reg 102 related compliance. Any reimbursement to the Lending Employer will be reduced by the Reg 102 withholding tax remitted to the CRA by the Borrowing Employer. It is important that the reimbursement does not include a “mark-up” in order to avoid the risk that the Lending Employer is viewed as carrying on in Canada the business of providing the services of its employees.  In such an arrangement, unless the non-resident employee’s total remuneration for the Canadian-situs work does not exceed $10,000 in the calendar year, the employee would not be entitled to a Treaty exemption as a result of the payment arrangements and thus would not be a qualifying non-resident employee. 

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.

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.

Events from this Firm
8 Nov 2016, Seminar, Ottawa, Canada

The prospect of an internal investigation raises many thorny issues. This presentation will canvass some of the potential triggering events, and discuss how to structure an investigation, retain forensic assistance and manage the inevitable ethical issues that will arise.

22 Nov 2016, Seminar, Ottawa, Canada

From the boardroom to the shop floor, effective organizations recognize the value of having a diverse workplace. This presentation will explore effective strategies to promote diversity, defeat bias and encourage a broader community outlook.

7 Dec 2016, Seminar, Ottawa, Canada

Staying local but going global presents its challenges. Gowling WLG lawyers offer an international roundtable on doing business in the U.K., France, Germany, China and Russia. This three-hour session will videoconference in lawyers from around the world to discuss business and intellectual property hurdles.

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.