Thomas R. Chiavetta
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.