July 2, 2019
Income Tax Obligations for Non-Residents of Canada
Under the Income Tax Act Canada (“Act”), a non-resident of Canada is liable for tax in Canada if the non-resident was:
Employed in Canada
Carried on a business in Canada1
Or disposed of a taxable Canadian property2 (at any time in the year or a previous year3)
A review of the relevant tax treaty may provide an exception for the non-resident’s Canadian income tax liability but will not waive the non-resident’s requirement to file a Canadian income tax return.
Services Provided in Canada by Non-Residents
Any time a payment4 is made to a non-resident of Canada in respect of services provided in Canada, the payor (regardless of residency) is required to withhold 15% of the amount paid and remit this amount to the Canada Revenue Agency (“CRA”)5.
The payor is required to report the amount paid and the amount withheld on a tax slip6. The tax slip(s) must be filed with the CRA and provided to the non-resident by the end of February following the calendar year in which the payment for the services was made.
Canadian tax obligations for non-residents requires that the non-resident file a Canadian tax return to report the income earned and can apply the amount withheld against the Canadian tax liability if any.
Relief
If the non-resident will not be liable for taxes in Canada due to an exemption in the relevant tax treaty, a waiver may be obtained to eliminate the payor’s withholding requirement. The payor will be required to withhold on payments made to the non-resident during the application time.
Even if a waiver is obtained, the non-resident is still required to file an income tax return in Canada.
Payroll Tax
Employer Obligations
There is a requirement for employers (regardless of residency) to withhold amounts from remuneration paid for office or employment services provided in Canada by Canadian resident and non-resident employees or officers7.
The employer is required to report the employment income and amounts withheld on an information return and slips8. These must be filed with the CRA and the slips provided to the employee by the end of February following the calendar year in which the employment income relates.
Relief
If the non-resident employee will not be liable for taxes in Canada due to an exemption in the relevant tax treaty, there is an ability to waive this withholding.
There are two methods available to apply for relief:
1. Certification under the Qualifying Non-Resident Employer (“QNEr”), Qualifying Non-Resident Employee (“QNEe”) Program
A QNEr (an employer resident in a treaty country certified by the Minister of National Revenue) while certified is not required to withhold and remit source deductions on salaries paid to a QNEe for employment service provided in Canada.
A QNEe must meet all of the conditions below:
Resident in a treaty country at the time of the payment;
Not liable for tax in Canada on this income because of the tax treaty; and
For the period that includes the time of the payment either:
Works in Canada for less than 45 days in the calendar year; or
Present in Canada for less than 90 days in any 12-month period.
2. Applying for a Regulation 102 Waiver
If the employee is not a QNEe, the employee can apply for a Regulation 102 waiver from tax withholdings if the employee’s remuneration is exempt from tax in Canada under the relevant tax treaty.
In either case, the employer will be required to withhold and remit the payroll tax withholdings to the CRA prior to the receipt of the certification or waiver.
Regardless of whether certification or a waiver is obtained, the employer is still required to report the employment income on the information return and slips as noted above.
Employee Obligations
Persons employed in Canada (regardless of residency) must file a Canadian personal income tax return to report their employment income whether or not they are subject to Canadian income tax. This return is due by April 30th of the following calendar year.
If you still have questions about Canadian tax obligations for non-residents of Canada, please submit a contact form inquiry.
1The definition of business in the Act is very broad and it is a question of fact whether a business is being carried on in Canada. The extended meaning in section 253 should also be considered
2A defined term which includes real or immovable property located in Canada
3Subsection 2(3)
4Fees, commissions, or other amounts
5Pursuant to Regulation 105
6T4A-NR
7Regulation 102
8T4
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.