Non-Resident Employer Certification: How it works
With the acceleration of globalization, many businesses are moving to extend their product and service offerings outside their borders. Sometimes this means sending employees to work overseas. In response, the Department of Finance and the Canada Revenue Agency (“CRA”) introduced the Non-Resident Employer Certification in 2015. This was designed to provide relief for qualifying non-resident employers, on their reporting and withholding requirements with respect to employees sent to work in Canada for limited periods of time.
Non-resident employees are generally subject to Canadian income tax on any income earned in Canada from office or employment. This includes salary, wages, and other types of compensation. A non-resident employer is required to withhold, remit, and report Canadian income tax for non-resident employees that are working in Canada.
If the country of residence for the non-resident employee has a tax treaty with Canada, the employee may not be subject to Canadian tax on their income earned in Canada. Even in the case where an employee is exempt from Canadian tax by virtue of a treaty, the employer is still required to withhold, remit, and report Canadian income tax to CRA on the income earned by a non-resident employee in Canada.
What is the Non-Resident Employer Certification?
After 2015, non-resident employers can apply for the Non-Resident Employer Certification in Canada by filing Form RC-473. If approved, the certification would relieve them from Canadian tax withholding, remitting and potentially reporting requirements on salary, wages and other remuneration paid to qualifying non-resident employees. This certification, once granted, is valid for up to two calendar years and applies to all qualifying non-resident employees working in Canada during the certification period.
Before 2015, where an employee was exempt from Canadian tax by virtue of a treaty, a Regulation 102 Waiver Application (Form R102-R) was the only available relief from withholding requirements. The Regulation 102 waiver must be filed by each individual employee.
Where the employer files an RC-473 and is approved, a qualifying non-resident employee working temporarily in Canada does not need to file a R102-R.
Qualifying non-resident employer
A qualifying non-resident employer is an employer who meets the following requirements at the time they make a payment to their non-resident employee in Canada:
- The employer is certified by the Minister of National Revenue pursuant to Subsection 153(7) of the ITA.
- For a business that is not a partnership – the employer is resident in a country with which Canada has a tax treaty or would be considered a resident if the employer is treated as a corporation in that country for tax purposes.For a business that is a partnership – all or substantially all (generally 90% or more) of the employer’s income for the fiscal period must be allocated to members who are residents in a country that has a tax treaty with Canada.
Qualifying non-resident employee
An employee who meets the following conditions is considered a qualified non-resident employee:
- Resident in a country that with which Canada has a tax treaty;
- Not taxable under Part I of the Canadian Income Tax Act because of the treaty;
- Works in Canada for less than 45 days in the calendar year; and
- Was present in Canada for less than 90 days in any 12-month period.
Days worked in Canada refers to days the employee is physically present in Canada and is performing employment duties for which they are being compensated.
Days present in Canada refers to any day the employee is physically present in Canada, even if it is only for a portion of the day. Days present is inclusive of days worked in Canada and days off.
How to apply for certification
To become a Certified Qualifying Non-Resident Employer, Form RC473 – Application for Non-Resident Employer Certification should be completed and submitted to the CRA International Waiver’s office for approval. The RC473 can be submitted by mail or through CRA online services.
The application must be received at least 30 days before a non-resident employee begins working in Canada.
The employer will be notified if a certification is granted. If approved, the employer will not be required to withhold or remit Canadian taxes on payments to their qualifying non-resident employees in Canada during the certification period. The employer can re-apply for certification if they need to as the two-year period approaches expiry.
Obligations for Certified Qualifying Non-Resident Employers
Once certified, the employer is responsible for determining whether an employee would be considered a qualifying non-resident employee.
For each non-resident employee, the employer is also required to document:
- days worked in Canada;
- days present in Canada; and
- renumeration paid for work performed in Canada.
Records of the non-resident employee’s duration and income earned in Canada are important as they may be required for support in the event of a CRA Audit. Additionally, if the total income earned or time spent in Canada for a non-resident employee exceeds certain thresholds, they may be subject to income tax withholding, remitting, and reporting requirements.
If the assignment period of the non-resident employee exceeds the 45-day or 90-day limit, the employee would no longer meet the definition of qualifying non-resident employee so the employer would have to withhold and remit income tax deductions.
If the employee no longer qualifies, they may still be exempt from Canadian tax by virtue of a treaty and can apply for the R102-R waiver for relief of withholding taxes.
Canada Pension Plan (CPP) and Employment Insurance (EI)
A certification does not exempt non-resident employers from withholding and remitting CPP and EI on remuneration paid to non-resident employees working in Canada. There are certain scenarios where withholding CPP and EI will not be required, but specific facts for the employer and each employee need to be met for an exemption to apply.
Annual T4/T5 reporting
If the employer has any reason to believe, after making reasonable inquiries, that the employee’s total taxable income earned in Canada for the year is more than $10,000 CDN, they are required to issue an annual T4/T5 slip and summary reporting the employee’s annual Canadian remuneration. Subsection 200(1.1) provides for the exception for T4/T5 reporting if the employee’s total taxable income earned from sources in Canada is below $10,000.
Total taxable income includes income earned in Canada that would be subject to Part 1 tax from the employer, as well as from other sources.
The non-resident employer certification may be beneficial to non-resident employers sending employees to work temporarily in Canada. This certification can alleviate the withholding, remittance and reporting requirements prescribed by the CRA. However, it is important to note that the onus rests with the employer to maintain supporting documentation for each qualifying non-resident employee. If you are wondering if the non-resident certification applies to your business and/or if you wish to apply, the Fuller Landau Tax team is ready to answer any questions.
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