CRA Non-Resident Employer Certification Program
On January 12, 2016, the Canada Revenue Agency (CRA) announced that it is launching the Non-Resident Employer Certification Program, as originally announced in the 2015 Federal Budget. The program will become operative on January 1, 2016 for certification applications received by the CRA by February 1, 2016. This is very welcome news for non-resident employers who send employees to Canada for short periods of time and these employees are exempt from Canadian tax because of the provisions of a tax treaty. This new program will greatly reduce the administrative burden associated with these short term stays.
Employers must register with the CRA to be part of this program and the registration form, with instructions on how to apply, are now available on the CRA website here: http://www.cra-arc.gc.ca/E/pbg/tf/rc473/README.html. To qualify for the program, a non-resident employer must meet the following conditions:
- Be resident in a country with which Canada has a tax treaty (special rules apply for employers who are partnerships); and
- Be certified by the Minister of National Revenue (which is done through the registration process which is now available).
- It is anticipated that the approval process will take about 30 days and will be granted for a two year period.
Under current tax legislation, non-resident employers must obtain employee-specific waivers from the CRA in order to be relieved from their obligation to withhold income tax on wages paid. In addition, the employer would have to comply with reporting requirements such as obtaining Canadian tax numbers and T4 reporting, for all employees who spent time in Canada, even if they ultimately were not subject to Canadian tax. Now, non-resident employers who are certified under this program will get relief from the requirement to obtain a waiver for qualifying non-resident employees, and the obligation to do reporting for these employees if they make less than $10,000 in a year related to their Canadian activities.
A qualifying non-resident employee is defined as one who:
- Is resident in a country with which Canada has a tax treaty at the time of payment;
- Is exempt from Canadian tax in respect of the payment because of a tax treaty; and
- Either works in Canada for less than 45 days in the calendar year that includes the time of the payment, or is present in Canada for less than 90 days in any 12-month period that includes the time of the payment.
Note that this program only applies to income tax withholdings on employee remuneration and it may be possible that Canada Pension Plan (CPP) and/or Employment Insurance (EI) premiums will still have to be withheld and remitted. That said, CPP premiums are not required for non-resident employees if they have a certificate of coverage under a Social Security Agreement between Canada and the country of residence of the employer, and EI premiums are not required if the employee is covered under a similar program in his or her country, while working in Canada. For example, most US resident employees would be able to meet these conditions.
A qualifying non-resident employer will have a number of obligations under the program including having a process to track the number of days each qualifying non-resident employee is either working in Canada, or is present in Canada, and the income attributable to these days on a proactive basis. The employer is also required to ensure that employees are resident in a country which has a tax treaty with Canada and also to ensure that the wages attributable to time spent in Canada is, in fact, treaty exempt.
If you have any questions on the Non-Resident Employer Certification Program please contact CompassTAX LLP.
Author: BDO Canada