“The employer must calculate, withhold and remit tax based on the employee’s Canadian income.”
When a non-resident comes to Canada to work here temporarily, his or her employer (whether Canadian or not) has the same tax-related responsibilities as for any Canadian employee. This obligation is not always recognized by employers.
If the employee has a work visa, he or she will need to apply for a Social Insurance Number (SIN). If not, application will be made for a Taxpayer Identification Number (TIN); see Tax Tip 09-13. If one or the other is not obtained by the employee, the employer must try to get one and may be penalized, absent a reasonable effort to obtain one.
The employer must calculate, withhold and remit tax based on the employee’s Canadian income and must check the need for other withholdings, such as CPP, Workers’ Compensation and payroll levies such as Ontario Employer Health Tax. The requirement to withhold CPP may depend on whether there is a relevant social security agreement between Canada and the employee’s country of residence.
If the employee is claiming expense reimbursements (or direct payments by the employer) for living expenses, travel, accommodation, etc., these payments should be reviewed to confirm that there are no consequential taxable benefits that would have to be reported by the employer.
There may be a tax treaty between Canada and the employee’s country of residence. This should be consulted, to see whether the employee can benefit from a tax exemption in the treaty. To avoid withholding tax when a treaty exempts the employee from tax, a tax reduction waiver can be requested from the CRA. The CRA suggests that waiver requests be submitted at least 30 days in advance of the required date and waivers are generally only effective from the approval date. The non-resident employee will be required to file a Canadian tax return by April 30 of the following year. Even if the employee‘s Canadian source income is exempt from tax because of a treaty, the employer must still issue a T4 and should tell the employee of his or her responsibility to file a Canadian tax return, claiming the treaty exemption.
If withholding tax is not remitted, the CRA may assess the foreign employee’s entire tax liability on the employer, since collection will be easier than chasing a non-resident employee.
Because of the complexities of employing a non-resident, professional advice and advance planning is usually essential.
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.