Frequent Business Travelers into Canada - Tax Compliance Update

GTN Newsletter - June 2015

Frequent Business Travelers into Canada - Tax Compliance Update

Ernie Nagratha, Partner

Trowbridge Professional Corporation
Phone: (416) 214-7833, ext 102 | Email: anagratha@globaltaxnetwork.ca

This is an update to our recent March newsletter which outlined the tax withholding and reporting requirements for frequent business travelers into Canada. We invite you to refer to the March Newsletter for a further discussion of the background on this topic and a detailed discussion of the existing Canadian tax rules.

Overview:

In a welcome relief, the 2015 Canadian Federal budget includes significant changes to the Canadian tax withholding and reporting requirements for foreign employers with frequent business travelers to Canada. In recent years there had been increased scrutiny by the Canada Revenue Agency (CRA) in enforcement of the tax rules relating to short-term business travelers into Canada. However, the technical requirements of the existing tax rules made it very difficult and impractical for employers to comply. These employers have been asking for changes to the requirements for a number of years. Although the full details are not available yet, we believe that these new rules will make it much easier for businesses to comply. At the same time, we believe that the CRA will continue to scrutinize employers and may increase audit activity once the new rules take effect in January 2016. It will be even more important for employers to develop a frequent business policy that will comply with these new rules.

Withholding Tax Relief Proposed under the 2015 Federal Budget

Effective for payments made on or after January 1, 2016, foreign employers with non-resident employees working temporarily in Canada will generally be exempted from the ‘Regulation 102’ payroll withholding requirement on an amount paid by them to an employee that is not present in Canada for 90 days or more in a 12 month period. Please note the further details and conditions provided below.

Further Details and Conditions:

For the exemption from the ‘Regulation 102’ payroll withholding requirements to apply, the amount must be paid by a "qualifying non-resident employer" to a "qualifying non-resident employee".

A "qualifying non-resident employer" is one which meets the following conditions:

  • Is resident in a country with which Canada has a tax treaty
  • Does not carry on business in Canada through a permanent establishment
  • Is certified by the Minister

A "qualifying non-resident employee" is one which meets the following conditions:

  • Is resident in a country with which Canada has a tax treaty
  • Will be exempt from Canadian income tax under the tax treaty
  • Is not present in Canada for 90 days or more in any 12 month period

The employer will be required to file an application form with the CRA in order to become certified. There will be a prescribed form requiring certain information and conditions to be met. This certification will only be for a specified period of time. Further details on these rules are still forthcoming.

The employer will still be required to file a T4 slip and T4 information return annually for each employee performing services in Canada. There is no de-minimus amount for the tax reporting requirement. The employee will still be required to file a Canadian income tax return to report the T4 income and claim treaty exemption. The relief described above only applies to ‘Regulation 102’ withholding tax. There is no relief provided if all of the above conditions are not met. For instance, the current withholding and reporting requirement still applies for employees that do not meet the conditions to be tax exempt under a tax treaty.

We believe that this is a good first step to assist foreign employers in meeting their payroll obligations. We will provide a further update as the CRA provides additional guidance and regulations over the next few months. It is a great opportunity for impacted employers to update or create a policy with respect to frequent business travel to Canada.

If you have any questions please contact Ernie Nagratha at anagratha@globaltaxnetwork.ca (416) 214-7833, ext.102.

The information provided is for general guidance only, and should not be utilized in lieu of obtaining professional advice.

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