Employment Services in Canada by U.S. Residents and Regulation 102 Waivers

BTS Regulation 102 Waiver Guidelines

The following provides information on how Article XV, Income from Employment, of the Canada  -  United States Income Tax Convention will be applied in respect of income from employment services provided in Canada by US residents. Residents of other treaty countries may have to apply a similar article from the tax treaty between Canada and their country of residence.

Canada - US Income Tax Convention (1980), Article XV - Income from Employment

Under paragraph 1 of Article XV, salary, wages and other similar remuneration derived by a resident of the United States (US) in respect of employment services provided in Canada are taxable in the United States, unless the employment is exercised in Canada.

Under paragraph 2, such remuneration is not taxable in Canada if:

(a) it does not exceed $10,000 Canadian; or

(b) the person is present in Canada for a period or periods not exceeding in the aggregate 183 days in any twelve month period commencing or ending in the fiscal year concerned and the remuneration is not borne by:

• an employer who is a resident of Canada,or
• a permanent establishment which the employer has in Canada.

Remuneration not exceeding $10,000

The CRA's position is that the $10,000 threshold applies to cumulative remuneration earned in Canada by the non-resident employee in the calendar year from the same or different employers. The remuneration received for services rendered in a particular calendar year should be added to any other amounts received in respect of services rendered in that calendar year to determine whether the threshold of $10,000 is exceeded for that year. "Calendar year" refers to the calendar year in which the services are performed, not necessarily the year in which the income is received.

If a US resident's remuneration does not exceed $10,000 in the year, he is exempt from tax in Canada regardless of whether he meets the conditions in (b). If his remuneration exceeds $10,000 in the year, he is exempt only if he meets both conditions set out in (b).

Days in Canada

When considering the aggregate 183 days rule, the words "aggregate days" includes the total of any day or part of a day in the year in which the person was physically present in Canada, regardless of the number of hours present. Article XV relates to the total number of days the individual is present in Canada, not just the number of days the individual worked in Canada. Even vacation time spent in Canada would be included in calculating the person's stay in Canada.

Borne by

The CRA considers the words "borne by" to mean that the expense is allowable as a deduction in calculating taxable income. In this regard, for the exemption in Article XV(2)(b) to apply, the remuneration cannot be borne by a resident of Canada or an employer who has a permanent establishment in Canada. The remuneration is borne by someone if he or she is charged either directly or indirectly through a management or administration fee or otherwise. The fact that the remuneration paid to the employee continues to come from the other country is not relevant in deciding by whom it was borne.

Permanent Establishment (PE) of the employer

The existence of a PE in Canada is a question of fact that must be determined on a case by-case basis. References to PEs in the examples are for illustrative purposes only. There is no inference that, based on the information provided in the examples, a PE would exist in any other similar case.

An employer

In determining whether the remuneration is borne by an employer who is a resident of Canada, one must determine who directs the employees on a day-to-day basis rather than determining who actually pays their salary.

A US production company may employ an individual resident in the US, but when the employee is performing duties under the direction and control of a Canadian production company, the presumption is that the employee is also an employee of the Canadian company. Accordingly, when deciding whether an individual is an employee of the Canadian or the non-resident company, the determining factor will be the conditions under which the individual is employed in Canada.