Budget eases filing burden for non-resident employees

Budget 2015 promises to ease the filing burden in a number of areas involving international tax. You’ve probably heard the T1135 is getting another makeover in response to the uproar last year’s revised form caused. Less widely discussed is filing relief for non-residents who work in Canada for limited periods.

Take the case of a U.S. company that sends a U.S-based employee to Canada for 10 days a year to do consulting work for a non-affiliated Canadian firm. CRA sees the income generated by those services as Canadian-sourced, notes Heather O’Hagan, a partner at KPMG in Toronto.

Read: Independent contractor or PSB?

Under current rules, the U.S. employer is required to withhold Canadian income tax. The employee then has to file a return to CRA to get that money back.

The requirement is especially burdensome in light of the fact Canada has tax treaties with most developed countries, and the treaties exempt this kind of short-term non-resident work from Canadian tax. The federal budget proposes to remove the withholding requirement: “Canada recognizes that for the most part, a lot of this remuneration that’s being paid to non-residents is not going to be subject to Canadian tax. So we’re going to remove this requirement to withhold,” explains O’Hagan.

She notes that qualifying for the proposed relief has conditions:

• employees can’t be in Canada for more than 90 days in any 12-month period that includes the time of the payment;
• the employer has to be a resident of a treaty jurisdiction; and
• the employer has to be certified by CRA.

O’Hagan notes the budget document doesn’t give any detail on what’s required to be certified. “But I’m assuming the non-resident employer would have to provide some information to CRA in respect of the employees they’re sending to Canada.”

The new rules would apply beginning next year.

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