Withholding for non-resident employers

For payments after 2015, Budget 2015 proposes to remove the requirement to withhold tax on salary, wages, and other remuneration (employment income) under certain conditions where it is paid by a certified non-resident employer to non-resident employees who are not required to pay employment income taxes in Canada because of a tax treaty.

On July 31, 2015, the Department of Finance announced proposed changes to the Budget 2015 proposals, for consultation. The following Q&As have been updated to reflect these latter proposals.

1. What are the current withholding tax obligations for non-resident employers who pay non-resident employees for employment in Canada, when the employee will be exempt from tax in Canada on their employment income under a tax treaty?

The employer is generally required to withhold and remit tax to the Canada Revenue Agency (CRA) on employment income paid to the non-resident employee. If the employee has applied to the CRA and received a waiver of the withholding tax that is valid at the time of payment, or the policy for conferences applies, the employer does not have to withhold and remit tax on the payments to that employee.

2. What is changing for non-resident employers whose employees are exempt from tax in Canada on their employment income under a tax treaty?

It is proposed that for payments made after 2015, a qualifying non-resident employer will not have to withhold Canadian tax on a payment to a qualifying non-resident employee.

3. What is a qualifying non-resident employer (QNRER)?

A QNRER is an employer that:

  • is resident in a country with which Canada has a tax treaty at the time of the payment, or at least 90% of the partnership’s income for the fiscal period that includes the time of the payment must be allocated to partners that are resident in countries with which Canada has a tax treaty; and
  • has been certified by the minister of national revenue.
4. What is a qualifying non-resident employee (QNREE)?

A QNREE is an employee who:

  • is resident in a country with which Canada has a tax treaty at the time of the payment;
  • is not liable to tax on the payment because of a provision in the tax treaty; and
  • 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.
5. How will a non-resident employer become a certified non-resident employer?

The non-resident employer will apply to the CRA to be certified, using the new form, RC 473, Application for Non-Resident Employer Certification. The normal withholding tax obligations will apply to the non-resident employer until the request for certification is approved. However, all applications received by the CRA before the end of day March 1, 2016 will be considered for an effective date of January 1, 2016.

6. For what time period will a certification be valid?

The CRA will generally issue certifications that are valid for a two-year period. Regardless of the period of certification, a certification will no longer be valid if it is revoked by the CRA.

7. Why would the CRA revoke an employer’s certification?

The CRA may revoke a certification where the employer no longer meets the conditions for certification.

8. What conditions must be met to be a certified non-resident employer?

To receive certification, it is proposed that the employer must:

  • be resident in a country with which Canada has a tax treaty at the time of the payment, or at least 90% of the partnership’s income for the fiscal period that includes the time of the payment must be allocated to partners that are resident in countries with which Canada has a tax treaty; and
  • meet other conditions established by the minister of national revenue.
9. Does the QNRER have to track the number of days a non-resident employee is present in Canada if the tax treaty provision that exempts the employee from tax in Canada is not dependent on this factor?

Yes. The QNRER is only relieved from their withholding obligation for payments of employment income to QNREEs. A QNREE 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. The number of days present in Canada includes days during which the employee is working, not working, or working for a different employer. A day includes any part of a day.

10. Can a non-resident employer who has not been compliant with withholding, remitting, and reporting obligations become certified?

Prior compliance with withholding, remitting, and reporting obligations will not affect the employer’s ability to become certified, except where the non-compliance occurred during a period for which the non-resident employer was a certified non-resident employer. However, becoming certified does not remove the liability of the employer related to any prior withholding obligations. Refer to information on the Voluntary Disclosures Program if you are an employer in this situation.

11. As a QNRER, if I make a payment to an employee who I believe at that time is a QNREE, but their circumstances change, do I have to remit the withholding tax?

Yes. However if, after reasonable inquiry, the qualifying non-resident employer had no reason to believe at the time of the payment that the employee was not a qualifying non-resident employee, no penalty will be applicable.

12. Where can I get more information about this change?

The CRA is committed to providing taxpayers with up-to-date information.

More information is available on the CRA Web site.

The 2015 Budget proposed legislation and subsequent proposed changes are available on the Department of Finance Web site.

 

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