Canada: Non-Canadian Resident Employer Certification – Recent Developments

Last Updated: January 16 2017
Article by Daniel Ling

Starting in 2016, the Canada Revenue Agency ("CRA") initiated the New Non-Canadian Resident Employer Certification program to simplify the payroll obligations on non-Canadian resident employers who send their non-Canadian resident employees to work in Canada. As the program grows, the CRA has started to audit program participants and sent out information requests.

Background

Non-Canadian resident employers are required to withhold and remit Canadian payroll taxes on every non-Canadian resident employee who is paid salary or other remuneration for work performed in Canada. However, many of these non-Canadian resident employees are exempt from Canadian income tax on employment income under their respective tax treaties. These employees could then apply for a waiver to reduce the payroll obligations on their employers.

Rather than having each employee apply for a waiver, the CRA simplified the process by introducing a certification process to approve non-Canadian resident employers as qualifying non-resident employers. Qualifying non-resident employers are not required to withhold and remit income taxes on remuneration paid to qualifying non-resident employees.

Qualifying non-resident employees are individuals not subject to income tax in Canada on Canadian source employment income by virtue of a tax treaty exemption with the individuals' home country. In addition, these individuals must either work in Canada for less than 45 days in the calendar year that includes the time of the payment, or be present in Canada for less than 90 days in any 12-month period that includes the time of the payment.

For more details about the application process, please see our bulletin: New Non-Canadian Resident Employer Certification.

Responsibilities

By becoming qualifying non-resident employers, employers are responsible for the following for the period of certification:

  • Tracking and recording the number of days each qualifying non-resident employee is working or is present in Canada, and the income attributable to these days;
  • Determining if the employee is resident of a country with which Canada has a tax treaty;
  • Evaluating and documenting if the qualifying non-resident employee's remuneration is expected to be exempt from tax in Canada under a tax treaty;
  • Determining if the qualifying non-resident employee either works in Canada for less than 45 days in the calendar year that includes the time of the payment or is present in Canada for less than 90 days in any 12-month period that includes the time of the payment;
  • Obtaining a Business Number and, if required to make remittances, a program account number for payroll purposes;
  • Completing and filing a T4 information return for employees who have provided employment services in Canada, except those employees earning less than $10,000 in Canada; and
  • Filing the applicable Canadian corporate income tax returns for the calendar years under certification.

To ensure that qualifying non-resident employers are maintaining their certification duties, the CRA has begun to request information which can include, but is not limited to:

  • The number of employees who have come to Canada since the beginning of the certification period, to date. If no employees have come to Canada yet, the CRA may ask when employees are expected to come to Canada during the certification period;
  • An explanation of the documentation the employer has obtained to support the residency and applicable tax treaty exemption of its qualifying non-resident employees;
  • Documentation for the number of days that the "qualifying non-resident employees" were working or present in Canada, including arrival and departure dates; and
  • Documentation supporting the attribution of employment income to these employees' days in Canada.

Qualifying non-resident employers are expected to provide the requested information within a few weeks of receiving such information requests. Non-compliance gives the CRA the ability to revoke certification requested at any time if the obligations of the qualifying non-resident employer certification are not met or if the facts presented at the time of the request for the certification are false.

Next Steps

As the CRA continues its audits, current and potential qualifying non-resident employers are reminded to keep current and detailed records as mandated by this certification so that this information is readily available should the CRA request it.

Developing updated and detailed records will be beneficial in the long-run, especially if the qualifying non-resident employers plan to renew their certifications. Each certification lasts two (2) calendar years and new applications should be received at least 30 days before any qualifying non-resident employee starts providing services in Canada.

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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