Relief of Canadian payroll withholding for nonresident employers

Nonresident employers who had employees working in Canada were required to withhold and remit Canadian payroll source deductions with respect to the employees’ time spent in Canada unless a Regulation 102 waiver was obtained. The Regulation 102 waiver process was at times cumbersome for nonresident employers and may not have met the growing need for mobility of businesses and their employees.

Recently, the Canada Revenue Agency (CRA) released Form RC473, Application for Non-Resident Employer Certification, in response to legislation proposed in 2015 which should help alleviate Regulation 102 compliance issues for nonresident employees.

Nonresident employer certification

Any non-Canadian employer who will have employees working in Canada may apply for nonresident employer certification. To obtain certification, Form RC473 will have to be completed and sent to the CRA at least 30 days before a qualifying nonresident employee starts providing services in Canada.

If certification is granted by the CRA, it will alleviate the nonresident employer’s obligation to withhold Canadian income tax from remuneration paid to nonresident employees who are working in Canada. The certification may be granted for up to two years.

Eligibility for certification

Employer
  • Employer must be a resident in a country with which Canada has a tax treaty
  • If employer partnership, 90 percent of allocation must be to partners who are residents of a country with which Canada has a tax treaty
Employees
  • Must be a resident of country with which Canada has a tax treaty
  • Must not be liable for Canadian income tax under a tax treaty1
  • Must work in Canada for fewer than 45 days in the calendar year that includes payment or be present in Canada fewer than 90 days in any 12-month period which includes the time of payment

Effective date

As a transitional measure, all Form RC473 applications received by the CRA before the end of day March 1, 2016 will be considered for a retroactive effective date of January 1, 2016.  It is important to note that applications made outside this transitional period, will not be retroactively effective. Therefore, it is imperative for affected nonresident employers act promptly on these relieving provisions. 

Obligations of the employer

  • Track and record the number of day’s nonresident employee is working and present in Canada; track employment income earned in Canada
  • Must be able to conclude on the employee’s exemption from Canadian income tax
  • Have books and records available to the CRA should they request
  • Obtain a CRA business number (BN) and remit where required
  • Notify the CRA at any time they become noneligible for certification
  • File all necessary returns for corporation and employees
  • File all necessary employment tax information returns (T4 slips and summaries)2

Canada Pension Plan (CPP) and Employment Insurance (EI)

  • Employees may be exempt from CPP if they have a certificate of coverage issued from their country of residence3
  • Employee may be exempt for EI if they can demonstrate coverage under a similar program in their country of residence

For more information on this topic, or to learn how Baker Tilly tax specialists can help, contact our team.


Notes

1Under the Canada-US Treaty, an employee may be exempt from Canadian income tax if:

  1. The employee earns under $10,000 Canadian or
  2. The employee is present in Canada for fewer than 183 days (in any 12-month period) and the Canadian source remuneration is not paid by, or on behalf of, a person resident in Canada and is not borne by a permanent establishment in Canada (note that the treaty reads present in Canada for 183 days, therefore need to count all days)

2Do not have to file if employees earn under $10,000 in calendar year
3US employees do not need CPP certificate of coverage if in Canada fewer than 183 days


The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely.  The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.