Canadian HR Reporter

CANADIAN HR REPORTER SEPTEMBER 2018 NEWS 9 JOINT VENTURE BY: Preparing for the tax and payroll issues of business travel A look at the intricacies of Canada's Non-Resident Employer Certifi cation Program BY MARNI HALPERN AND JENNIFER SANTOS BUSINESS TRAVELLERS are an important part of an expanding company, providing services and products to new markets in inter- national locations. However, em- ployees working in foreign coun- tries could mean there are tax compliance and payroll reporting and withholding requirements for employers doing business in new markets. Canada is one of those coun- tries. Having a non-resident employee working at or attend- ing a conference in Canada, for example, may trigger payroll tax compliance including withhold- ing and remittances to the Canada Revenue Agency (CRA). Background on Regulation 102 of the Income Tax Foreign employers that have em- ployees performing employment services in Canada fall under the same withholding and reporting rules that apply to Canadian resi- dent employers. An employer (whether Cana- dian or foreign) is required by Regulation 102 of the Income Tax Act to withhold Canadian income taxes on remuneration paid to a non-resident of Canada for services rendered in Canada, even if the payment is made out- side of Canada and the payment is exempt from tax pursuant to a tax treaty. Regulation 102 applies if there is a: • non-resident employer with Ca- nadian resident employees • Canadian resident employer with non-resident employees providing services in Canada • non-resident employer with non-resident employee provid- ing services in Canada. However, under the terms of many of Canada's tax treaties, non-resident employees are gen- erally not required to pay tax in Canada if the number of working days in Canada, or the total remu- neration they earn in Canada, is relatively nominal. For example, a United States resident employee will generally be exempt from Canadian tax if the remuneration does not exceed $10,000 or if the employee is pres- ent in Canada for no more than 183 days in any 12-month period commencing or ending in the relevant calendar year, and if the remuneration is not deductible as an expense by a permanent estab- lishment in Canada. e employer can avoid with- holding if the employee or em- ployer obtains a waiver from the CRA. However, once a waiver appli- cation has been fi led, it can take several weeks to be processed. Even with the waiver, the em- ployer must fi le a T4 Informa- tion Return (includes T4 remu- neration slip) and the employee is also required to fi le a Canadian income tax return to report the exempt income. Non-Resident Employer Certifi cation Program Non-Canadian resident employ- ers that have non-resident em- ployees working in Canada can now apply to be eligible for the new exception from the with- holding tax requirements under Regulation 102. is exception took eff ect Jan. 1, 2016. e Regulation 102 rules re- quire employers to withhold Ca- nadian tax on income earned in Canada by non-resident employ- ees. e exception to these rules will be available for qualifying employers and employees. Em- ployers apply for the exception using Form RC-473, Application for Non-Resident Employer Cer- tifi cation. e certifi cation, when approved by the CRA, is valid for two years. Qualifying for the exception Employee: To qualify for the ex- ception, an employee must meet the criteria set out under a tax treaty to be exempt from income tax in Canada. e employee must work in Canada for fewer than 45 days in the calendar year that in- cludes the time of the payment, or must be present in Canada for fewer than 90 days in a 12-month period that includes the time of the payment. e exception is limited to em- ployees who travel to Canada to provide services for non-resident employers. e exception does not cover seconded employees or non-resident employees who are economic employees of Canadian employers. Employer: A qualifying em- ployer must be a resident in a country with which Canada has a tax treaty and must be certi- fi ed by the CRA at the time of the payment. A partnership may also involve a qualifying employer if it meets certain conditions. Employer obligations Once a company determines it can qualify for the exception, it should make sure it is able to ful- fi ll the obligations set out by the CRA. e CRA states that, among other things, a qualifying employ- er must: • obtain a business number and if required to make remittances, a program account for payroll pur- poses • fi le the applicable Canadian cor- porate income tax returns for the calendar years in which it is certi- fi ed as a qualifying employer • track and record the number of days each qualifying employee is either working in Canada or present in Canada • determine whether the employee is a resident in a country with which Canada has a tax treaty • complete and file a T4 Infor- mation Return (includes T4 remuneration slip) for employ- ees who have provided employ- ment services in Canada, ex- cept for employees earning less than $10,000. In order to fi le a T4 slip, additional information may be required by the qualifi ed employee such as an individual taxpayer number (ITN) or social insurance number (SIN). Best practices Employers should consider set- ting up a business travel policy outlining the responsibilities of both parties. It's advisable to edu- cate employees about the policy and provide a question-and-an- swer document to help with any queries. 4.8 million 4.8 million e number of Canadians returning from the United States on business (out of 42 million total trips) in 2017. Source: Statistics Canada Source: AirPlus International countries expecting increases in business travel in 2018 India China South Africa Australia Canada United States Netherlands Scandinavia Italy Austria 77 % 55 % 50 % 50 % 45 % 43 % 43 % 38 % 30 % 27 % Credit: Andrii Horulko (Shutterstock) Employers should set up a business travel policy outlining the responsibilities of all parties. It's also important to have buy-in from C-level employees. BUY-IN > pg. 10

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