Tax alert: Canada issues form for non-resident employer certification program

Under Canadian tax rules, non-resident companies sending employees temporarily into Canada are required to determine the amount of salary/wages attributable to an employee’s services rendered in Canada, and withhold and report Canadian payroll taxes under Regulation 102. Withholding applies even if the employee or employer is otherwise exempt from tax under an Income Tax Treaty. Prior to newly issued guidance, employers could only avoid withholding under this Regulation 102 if they applied for a waiver in advance, and only on an employee by employee basis.

On January 12, 2016, the Canada Revenue Agency released the Form RC473 Application for Non-Resident Employer Certification which allows U.S. companies to apply for a certification to be exempt from withholding Canadian payroll taxes on the portion of its U.S. employee’s salary/wages subject to Canadian payroll withholdings under certain conditions including:

The non-resident employer is not subject to Canadian income tax income due to an exemption under the Canada-U.S. Tax Treaty;

1. The U.S. employee works in Canada for less than 45 days in the calendar year, or will be present in Canada for less than 90 days in a 12-month period (tracking of employee days is required – non-working days count toward the 90 day total);
2. The non-resident employer does not have a permanent establishment in Canada during the tax year that includes the time of the payments.
3. The non-resident employer must obtain a Canadian business number (and will be required to file any treaty based returns and summary payroll reports)

Unlike the Regulation 102 waivers that had to be obtained on an employee-by-employee basis, one certification covers all qualifying employees. The certification is valid for a two-year period.

In addition, the CRA has indicated that prior compliance (or errors in that compliance) will not preclude the non-resident from becoming certified, provided that the non-resident complies with the certification requirements of this new procedure. The CRA can revoke the certification if the non-resident fails to meet the certification requirements.

The RC473 Application for Non-Resident Employer Certification must be submitted to the Canada Revenue Agency prior to the U.S. employees going into Canada. However, if the Canada Revenue Agency receives the RC473 Application for Non-Resident Employer Certification by March 1, 2016, it will issue a Non-Resident Employer Certification retroactive to January 1, 2016. Applications received after March 1, 2016, will apply prospectively.