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New, Easier Employer Certification Program for Regulation 102 Tax Waivers


​​Do you often wish to send employees across the border into Canada on short notice but worry about getting tax withholding waivers processed in time? Are you concerned that your employees won’t be willing to travel to Canada for work due to Canadian tax reporting requirements, which places some of the burden on them? Good news. Some relief is here.

Existing waiver requirements

Under regulation 102, employment income earned in Canada by non-residents is subject to the same tax withholding requirements as resident employees, whether they are paid by Canadian resident or non-resident employers. If there is ultimately no tax expected as a result of the non-residen’st earnings being exempt from Canadian tax under a tax treaty, a waiver can be obtained to eliminate withholdings.

Without the new employer certification, tax withholding waivers must be applied for on an individual-by-individual basis and approved prior to payment to the employee, which often means prior to sending the individual to Canada for a short-term stay. The individual waiver applications also request information regarding specific projects and contracts already in place. The processing time can take weeks. The tricky stitch in that lies in the fact that more often than not, employers don’t know of the particular need to send someone to Canada or which employees they can send that far in advance.

Even if a tax withholding waiver has been obtained and there is ultimately no tax owing, there are still additional filing requirements such as the filing of T4 wage slips for these individuals and the filing of T1 income tax returns by the employee in order to claim the exemption from taxes under the treaty. Employees are also required to obtain a Canadian tax identification number which is to be used to file the T4 slip and T1 return.

New certification option

As of January 1, 2016, employers can apply to obtain non-resident employer certification. This new certification will give some relief to employers who, in the past, had to apply tax waivers for each individual employee they sent into Canada or satisfy the tax withholding obligations. The employer certification essentially allows for a blanket waiver to be filed by the employer to cover all eligible employees, minimizing the administrative burden and alleviating some of the concerns over processing time. After years of lobbying for a blanket-type waiver, this is a welcome change by many employers.

To qualify for the program, the non-resident employer must be resident in a country with which Canada has a tax treaty and be certified by the Minister of National Revenue. To become certified, the registration form, which can be found on the CRA’s website, along with instructions on how to apply, must be completed. The approval process is expected to take approximately 30 days, but the good news is, certification will be granted for up to a two year period.

For an employee to be covered by the employer’s certification, the employee must meet the following conditions:

  • The employee is resident in a country with which Canada has a tax treaty at the time of payment
  • The employee is exempt from Canadian tax in respect of the payment because of the tax treaty and
  • The employee 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 payment.

Qualified employers are obligated to have a process in place to track the number of days the qualifying employee spends in Canada and proactively attribute income to the days spent in Canada. They must ensure that this income is in fact exempt under the treaty. Any employees who do not meet all the conditions above are not covered by this program and are subject to existing Regulation 102 requirements; taxes must be withheld unless an individual tax withholding waiver has been obtained for that employee.

It should be noted that this certification program applies to income taxes only. That is, Canada Pension Plan (CPP) and Employment Insurance (EI) premium withholdings and remittances may still apply. However, if an employee has a certificate of coverage under the totalization agreement between Canada and the home country, CPP withholdings are not required. If the employee is covered under a program similar to EI in their home country while they are working in Canada, EI premiums are not required to be withheld.

Contact Linda Quinn CPA, CA at 519.725.7700 or [email protected] or Myra Orita, CPA, CA at 519.722.7448 or [email protected].