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Jan. 13—Qualifying nonresident employers can use a newly released form to apply for certification to stop withholding income taxes on their qualifying nonresident employees in Canada, the Canada Revenue Agency (CRA) said Jan. 12.
Under new guidelines in Form RC473, “Application for Non-Resident Employer Certification,” the CRA must receive employer applications for withholding relief at least 30 days before a qualifying nonresident employee starts providing services in Canada.
The guidelines follow the legislation proposed by the Canadian Department of Finance July 31, 2015, to allow qualified employers to avoid withholding Canadian taxes on certain foreign workers temporarily working in Canada. The legislation, yet to be formally enacted, is expected to be applicable from Jan. 1, 2016.
Employer applications received by Feb. 1 will be considered retroactively effective from Jan. 1, tax and advisory services firms Deloitte LLP and KPMG LLP both said.
Current Canadian law requires nonresident employers to withhold taxes for nonresident employees temporarily working in Canada, regardless of whether income tax treaty provisions would allow exemption from Canadian taxes.
This requirement has frequently been cited by businesses engaged in cross-border trade and commerce as a significant administrative burden. The only recourse for employers was to apply for employee-specific waivers that were granted only to identified employees for time periods scheduled in advance.
Employees under this system were required to file a return to the CRA to claim a treaty-based refund on their withheld taxes.
Filing Form RC473 starts the certification process that would allow qualifying nonresident employers to avoid withholding on certain nonresident employee income. Qualifying nonresident employers are defined as employers who are residents of countries with which Canada has a tax treaty or partnerships in which at least 90 percent of the partnership income is allocated to partners who are resident in a country with which Canada has a tax treaty.
Qualifying nonresident employees are defined as individuals who are:
• residents in a country with which Canada has a tax treaty;
• not liable to income tax obligations under a tax treaty or
• work in Canada for less than 45 days in the calendar year or is present in Canada for less than 90 days in any 12 month period.
A qualifying nonresident employer who has received certification has several obligations to maintain certification, including:
• confirming that the qualifying employee is a resident of a country with which Canada has a tax treaty and documenting that the qualifying employee's remuneration is expected to be exempt from tax under a tax treaty;
• tracking and recording the number of days the qualifying employee either works in Canada or lives in Canada as well as the income attributable to these days to confirm that the employee either works in Canada for less than 45 days in the calendar year of payment or is present in Canada for less than 90 days in a 12 month period of the payment;
• obtaining a Business Number, the nine-digit identifying account numbers registered with the CRA;
• obtaining a program account number for payroll if required to make remittances;
• submitting a T4 Summary and Information Return for employees earning over the C$10,000 ($7,245) for the year;
• filing applicable Canadian corporate income tax returns for calendar years under certification;
• upon request, making books and records available in Canada for inspection by the CRA for the purpose of administering the employer certification agreement and the withholding requirements;
• contribute Canada Pension Plan contributions unless the employee has a certificate of coverage under a Social Security Agreement between Canada and the employer's country of residence and
• contribute employment insurance premiums unless the employee is covered under a similar program in his or her country while working in Canada
Employers seeking certification must complete the form and manually send it to the Pacific International Waivers Centre of Expertise located at the Vancouver Tax Services Office.
Nonresident employer certification will be valid for up to two years but the CRA can revoke certification if it deems the obligations to have not been met or if the facts presented in the certification request are incorrect. If certification is revoked, the CRA will issue a revocation letter to the employer. The employer may become liable to withhold and remit tax and be subject to any related penalties when the employer no longer meets the conditions to be considered a qualifying nonresident employer, or fails to make reasonable enquiry to determine if a payment is being made to a qualifying nonresident employee, CRA said.
The issuing of the formal application is “a relief and welcome change to employers” that the business community “will be ecstatic with,” Fatima Laher, a partner with Deloitte in Toronto, told Bloomberg BNA Jan. 13. Although some businesses would want a longer period than 45 days of work or 90 days of presence, “this is the best they could do” and proves that the government was willing to listen to feedback from the business community, she said.
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The application form for nonresident employer certification is available at http://www.cra-arc.gc.ca/E/pbg/tf/rc473/README.html.
More information on payroll issues in Canada can be found in the Canada country primer.
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