Important Opportunity for U.S. Employers with Employees in Canada
Some employers may benefit by acting before March 1.
(Extended from previous deadline of February 1.)
Under current Canadian law, U.S. employers are required to withhold and remit Canadian income tax for employees who work in Canada, no matter how short the assignment. Withholding is required even though there may be an exemption under the Canada-U.S. Tax Treaty.
There’s good news, though. The Canadian Government has proposed legislation in place (expected to become law in 2016) for a new exception to its withholding rules. Here are the qualifications for the exception:
- The employee working in Canada has to meet the criteria of a tax treaty with Canada to be exempt from income tax in Canada.
- The employee works in Canada for less than 45 days in the calendar year of the payment or for less than 90 days in any 12-month period that includes the time of the payment.
- The employee is employed by a non-resident Canadian employer, e.g. a U.S. employer.
- The employee is not seconded to Canada to work for a Canadian employer.
- The employee is not an economic employee of a Canadian employer.
- The U.S. employer must not carry on business in Canada through a permanent establishment.
- The U.S. employer must be certified by the Canada Revenue Agency (CRA) at the time that the payment is made.
Even though the new rule is not officially law yet, the Canadian Revenue Agency (CRA) released a form, RC 473, that nonresident (U.S.) employers can use to obtain certification. Nonresident (U.S.) employers should file the form with the CRA at least 30 days before the employee begins working in Canada. To be certified effective January 1, 2016, a nonresident employer should file form RC 473 by March 1, 2016. (This is an extension of the February 1 deadline that CRA had previously announced for certification effective January 1, 2016.) If approved, the CRA will inform the nonresident employer by letter. The approval may be granted for up to two years.
The CRA has indicated that if approved, a qualifying nonresident (U.S.) employer must:
- Track and record the number of days a qualifying employee is either working or present in Canada.
- Determine whether the employee is resident in a country with which Canada has a tax treaty (For U.S. employers, a U.S. resident employee is a resident of a country with which Canada has a tax treaty).
- File a Form T4 Summary and Information Return for employees working in Canada (not required for those earning less than C$10,000).
- Obtain a Canadian business number and a program account number if required to remit amounts to the Canadian Government.
- File all applicable Canadian income tax returns for the calendar years in which the employer is certified by CRA.
It’s important to understand the basics before you or your business crosses borders
In today’s economy, many businesses wind up crossing international borders much sooner than they expected—often without even realizing it. It’s not uncommon for growth-oriented entrepreneurs to charge ahead believing that it’s easier to ask for forgiveness than permission, but that philosophy can lead to fines, penalties and taxes that could have been avoided when it comes to international taxes. If you understand these basic concepts about income tax treaties, you’ll be better equipped to understand when to ask permission and how to do it.
- Tax Treaties Have 2 Main Goals: In short, tax treaties provide guidance regarding potential tax benefits and reporting requirements when residing or doing business in a foreign country.
- Avoiding Double Taxation: This may be hard to believe, but not every government thinks it’s entitled to tax all of your income. Nations negotiate tax treaties in order to determine where income should be taxed and to make sure that the same income is not taxed both at home and abroad.
- Avoiding Tax Evasion: This goal sounds more like what you expect from governments. While treaties may ease a tax burden by preventing double taxation, they will almost always assign some sort of information reporting obligation to an individual or business when in a foreign country. A treaty also typically includes protocols that govern the sharing of tax information between governments.
- Residency: Step 1 when it comes to figuring out where you have to report information or file taxes is figuring out where you are a resident. Spoiler alert— For individuals, it’s not always where you live.
- Individuals: Most treaties determine if an individual is a resident for tax purposes by counting the number of days spent in the country. At the same time, a treaty can also describe specific exceptions that allow someone to live abroad and maintain tax residency in the country that they think of as home. For example, Canadians who spend significant time in Florida may become U.S. residents for tax purposes, but the treaty between the countries will allow for a “closer connection” exception if one follows certain rules and files certain forms.
- Businesses: Corporations and other types of businesses typically follow a more incremental process toward tax residency. Many enterprises first cross a border when they ship a product or deliver a service electronically into another country. Others might send a salesperson to a trade show in another country where that person closes deals on site. This can be followed by warehousing product in the second country, employing citizens of the country to manage operations there, and eventually opening an office or outlet that might establish tax residency for the business in the foreign country. A treaty can detail the obligations of the business at each of these stages.
- Immigration: Corporations rarely face immigration issues applicable to the business, but they almost always face immigration issues when employees work in other countries. A tax treaty can spell out what special visas and work permits may be needed in order for an employee to work in the host country. As for acquiring those visas and permits, an attorney who focuses on immigration issues may be the best resource for a business sending workers into another country.
The United States currently has tax treaties with about 60 countries. If you are a businessperson in the U.S. or one of those countries, it’s critical to understand the requirements of the relevant treaty before doing business that crosses the border. If you have operations in a country without a U.S. treaty, it’s important to understand how the Internal Revenue Code will treat the income you generate--both in the U.S. and abroad. As noted above, this is an area where engaging professionals before you start can save you money and hassles, while seeking forgiveness after the fact can lead to significant fines and penalties in addition to taxes. A consultation with an international tax professional is a must for any business with plans to operate across borders.
With the new release of income tax credits, three New York State business tax credits have been extended or created to help reduce New York State income tax liability. These credits include potential claims for refundable credits even if you do not owe any income tax and may benefit employers.
For a full explaination of these credits please see our client alert here.
With the ever-changing and complex regulatory environment, compliance with accounting for income taxes (ASC 740), formerly known as FAS 109, has become more difficult for companies to manage efficiently. Companies must work hard to ensure that they minimize compliance related errors with the current tax laws and financial accounting and reporting standards.
In this two-hour LIVE webcast on May 17th, a panel of distinguished professionals assembled by The Knowledge Group will discuss the significant topics related to tax accounting rules and implementation of ASC 740. The faculty will discuss:
Brief Overview of ASC 740 and Refresher in Current and Deferred Tax Computation
Pertinent Accounting Principles and Tax Accounting Provisions
Application of ASC 740 to State and International Income Taxes
Hot Topics in Internal Controls
Issues Relating to Compensation and Benefits Developments
Best Practices and Practical Guidance for Tax Preparation, Compliance and Effectiveness
Up-to-the-Minute Regulatory Updates
This is a must attend event for Finance Executives, CPAs, Attorneys, Enrolled Agents, Tax Practitioners, and other Interested Professionals. Attending this course will give you the tools you need to understand the latest developments in ASC-740.
Course Level: Intermediate
Method Of Presentation: Group-Based-Internet
Developer: The Knowledge Group, LLC
Recommended CLE/CPE Hours: 1.75 - 2.0
Advance Preparation: Print and review course materials
Course Code: 134416
NASBA Fields of Study: Accounting – 1.00 credit and Taxes – 1.00 credit
Other Certifications: IRS EA Credits: Federal Tax – 2:00 credits
$199 - $249 (Early Bird Discounted Rate - on or before 05/07/2013)
$299 - $349 (Regular Rate - registration after 05/07/2013)
$149 (Government / Nonprofit Rate)
Featured Speakers for ASC 740: Income Tax Accounting for 2013 LIVE Webcast :
Douglas I. Schwartz, CPA/CFF, Cr.FA, Managing Member,
Samuel C. DiSalvo, CPA J.D., Director,
Angela L. Evans, Partner, Business Tax Services,
Douglas I Schwartz, LLC
Douglas I. Schwartz, CPA/CFF, Cr.FA
speaker bio »»
Freed Maxick CPAs, PC
Mark A. Stebbins, CPA
Director - Tax Practice Leader
speaker bio »»
Freed Maxick CPAs, PC
Samuel C. DiSalvo, CPA J.D.
speaker bio »»
Ernst & Young LLP
Angela L. Evans
Partner, Business Tax Services
Who Should Attend?
- Finance Executives
- Tax Attorneys
- Enrolled Agents
- Tax Practitioners
- Tax Directors
- Tax Managers/Executive
- Internal Audits
- Financial Planners and Executives
- Tax Consultants
- And Other Interested Professionals
This is a must attend event for anyone interested in understanding the related issues and changes to Income Tax Accounting (ASC 740). In this live virtual course, you will hear:
- Detailed guidance explained by the most qualified key leaders & experts
- Hear directly from experienced practitioners & thought leaders
- Interact directly with panel during Q&A
Advanced registration is recommended as space is limited. Please click the “Register” button below to enroll in this course today. Significant discounts apply for early registrants.
Please note, the event date is firm although it may be subject to change. Please click here for details.
The Knowledge Group, LLC is producing this event for information purposes only. We do not intend to provide or offer business advice. The contents of this event are based upon the opinions of our speakers. The Knowledge Congress does not warrant their accuracy and completeness. The statements made by them are based on their independent opinions and does not necessarily reflect that of The Knowledge Congress' views. In no event shall The Knowledge Congress be liable to any person or business entity for any special, direct, indirect, punitive, incidental or consequential damages as a result of any information gathered from this webcast.