02 Oct 2019
US Employer Withholding Requirements
In this post, we will take a look at employer withholding requirements for non-resident employees working in Canada.
With businesses expanding globally, it is important to consider the obligations of non-resident employers sending their employees to provide employment services in Canada. The rules vary from country to country, so for purposes of this article, we will focus on the obligations of a US corporation (a C-Corp) sending its employees to work in Canada on its behalf.
Payroll remittances (Income Tax, Employment Insurance (EI), and Canada Pension Plan (CPP)) are required to be withheld from all employees working in Canada.
However, in relation to employer withholding requirements, the Canada Revenue Agency (the “CRA”) does provide exemptions if certain agreements are in place.
If a non-resident employee is providing employment services in Canada, withholdings of income tax are required by the employer unless a waiver is provided to exempt the non-resident from tax in Canada in accordance with the tax treaty between Canada and the USA. This can be done one of two ways:
- A non-resident employee can apply for a Regulation 102 Waiver, subject to certain conditions. This must be completed by each employee and submitted to the CRA within 30 days prior to starting work in Canada.
- An alternative to filing a Regulation 102 Waiver for the non-resident employer is to be certified as a Qualified Non-Resident Employer (QNRER). As a certified QNRER, qualifying non-resident employees will not require Regulation 102 Waivers for a specified period of time.
To be classified as a QNRER, the non-resident employer must be:
- Certified by the Minister of Revenue; and
- Resident of a country Canada has a tax treaty with.
Once classified as a QNRER, the non-resident employer is required to determine whether the employee meets the set-out requirements to qualify under this program as a Qualified Non-Resident Employee (QNREE).
To be classified as a QNREE the non-resident employee must:
- Be resident of a country Canada has a tax treaty with at the time of payment;
- Not be liable for tax in Canada because of the tax treaty; and
- Be present in Canada for:
- Less than 45 working days (excluding weekends, days off, holidays, includes partial days) in the calendar year that includes time of payment; OR
- Less than 90 days in any 12-month period that includes time of payment.
The QNRER must track and record the number of days each non-resident employee is working/present in Canada and the income attributable for those (working) days to ensure the employee fits within the time limits noted above. Evidence of this may be requested by the CRA to ensure that the non-resident employer is meeting its employer withholding requirements.
The QNRER must prepare and file T4 Summaries and T4 slips for all resident and non-resident employees except with respect to remuneration paid to non-resident employees with taxable income earned in Canada of less than $10,000, and notify CRA once a non-resident employee no longer meets the criteria above.
If the non-resident employer fails to keep the appropriate records or the assessment of the employee is incorrect, the non-resident employer must start making payroll withholdings immediately and arrange to have the withholdings on previous payments made. A Regulation 102 waiver can be obtained if the employee still qualifies, however, the waiver is not retroactive, and withholdings will still be required for the period not covered by the waiver.
Employment Insurance (EI)
Remuneration paid to non-resident employees by a non-resident employer is not insurable when premiums have to be paid according to the unemployment insurance laws of the USA.
Canada Pension Plan (CPP)
The Totalization Agreement between the United States and Canada provides the following guideline when determining whether CPP must be withheld from a non-resident’s remuneration:
The determination of employer withholding requirements for non-resident employees working in Canada can be quite complex. For additional information and assistance, please contact Manning Elliott Tax Advisor, Inder Mandar, CPA, CA, with any questions or submit a contact form inquiry.
Section 102 of the Income Tax Regulations (Regulation 102)
Days worked in Canada include only the days during which the employee is physically present in Canada and paid by his or her employer for the time spent in Canada, which generally excludes weekends, days off and holidays. Days present in Canada includes any day (including weekends, days off, and holidays) during which the employee is present in Canada, even if the employee is only present for a portion of the day (i.e. travelling days).
This content is believed to be accurate as of the date of posting. Tax laws are complex and are subject to frequent change. Professional advice should be sought before implementing any tax planning. Manning Elliott LLP cannot accept any liability for the tax consequences that may result from acting based on the information contained therein.