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May 19, 2024

Tax Tips

Withholding Tax on Remuneration Paid to Non-Residents of Canada
Subject: Withholding Tax
Number: 06-33
Date: 12/8/2006
Without planning, non-resident employers could be subject to unexpected taxes

Regulation 102 of the Income Tax Act applies to withholding taxes for employees who provide services in Canada. The requirement to withhold taxes is not limited to Canadian employers only. Instead, the withholding tax rules apply to any employer who has an employee who provides services in Canada. The withholding tax requirements are the same as for any Canadian employee who works in Canada.

There are no minimum payment exceptions for the withholding taxes. As well, there could be Canada Pension Plan and Employment Insurance withholding requirements. The CRA is willing to issue a waiver to reduce or eliminate withholding taxes under certain circumstances. Having said that, a waiver will only reduce or eliminate withholding taxes after the waiver has been issued. There is no specific form for a waiver. Instead, it is a written request. If the employee has already started earning income in Canada, and a waiver is received at a later point in time, then the withholding tax requirement still applies to that period before the waiver was received.

Even if a waiver has been granted, employers are still required to prepare and file a T4 employment income summary for all amounts paid to non-resident employees.

Penalty and interest provisions can still apply to the payor for the taxes that should have been withheld even though there may be no ultimate liability for taxes due to a treaty.

Non-resident employers are well advised to plan ahead so as to minimize their exposure on withholding taxes.

TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.

The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.