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Canada: Welcome withholding relief for foreign employers with frequent business travelers to Canada



Soraya Jamal

Bill Maclagan

Canada's 2015 Budget contains relieving measures to reduce withholding tax obligations for non-resident employers with frequent business travelers to Canada. The relieving measures are expected to alleviate the administrative burden imposed on non-resident employers that have short term non-resident employees working in Canada. Generally, a non-resident is subject to Canadian tax on employment income earned in Canada, subject to treaty relief. A non-resident employer is required to make Canadian employment payroll withholdings on remuneration paid to an employee who works in Canada, even if that employee is exempt from Canadian tax under an applicable treaty. An employer is only relieved from such withholding obligations where a treaty-based waiver is obtained from the Canada Revenue Agency (CRA). Such waivers are available only in limited circumstances, must be obtained separately for each employee, and have proved to have limited utility in practice.

Budget 2015 proposes an exception to the withholding obligations imposed on a qualifying non-resident employer on payments made to a non-resident employee that is: (i) exempt from Canadian income tax under a tax treaty; and (ii) not in Canada for 90 or more days in any 12 month period that includes the time of payment. A qualifying non-resident employer must be resident in a country with which Canada has a tax treaty and must not carry on business through a Canadian permanent establishment (as defined by regulation, as opposed to the applicable treaty). Additionally, a qualifying non-resident employer must be certified by the Minister of National Revenue at the time the payment is made. To become certified, an employer must file a prescribed form certifying certain conditions (all of which are not known yet). Special rules will apply to employers that are partnerships.

Where the foregoing conditions are satisfied, a non-resident employer will be exempt from Canadian payroll withholding and remittance requirements. However, the employer must continue with its reporting requirements for such payments (for example, filing T4 returns). The extent to which non-resident employers find the new exemption helpful remains to be seen. As is now proposed, the decision to certify and qualify a non-resident employer is discretionary, even if all the required conditions are met. Also, the application for certification will serve to notify CRA about a non-resident's presence in Canada, affording CRA an opportunity in advance to take a position on whether the non-resident is carrying on business in Canada, or doing so through a Canadian permanent establishment. The proposed withholding relief will apply in respect of payments made after 2015.

Soraya Jamal ( andBill Maclagan (

Blake, Cassels & Graydon

Tel: +1 604 631 3300

Fax: +1 604 631 3309


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