Tag Archive: Canada

1. Employers and Remote Work in Canada

   18 July 2023 11:01 am Leave a Comment

   Introduction

   As remote work becomes the new norm in many industries, employers face a maze of tax obligations when their employees operate from Canada. 

   Whether intentional or a result of Covid-19 travel restrictions, these arrangements can spark a range of tax issues for non-Canadian employers. 

   In this blog, we shed light on some key considerations and obligations that employers must navigate when their employees work remotely in Canada.

   Payroll Tax Obligations

   Having an employee in Canada triggers payroll tax obligations for the employer.

   These include deductions for income tax, Canada Pension Plan (CPP) contributions, employment insurance (EI) premiums, and any applicable provincial payroll taxes. 

   While resident and non-resident employers share similar obligations, non-resident employers without a presence in Canada may not be required to withhold CPP contributions. 

   Similarly, they may not withhold EI premiums if they are payable under the employment insurance laws of the employee’s home country. 

   However, when CPP contributions and/or EI premiums are due, the employer becomes liable for these on its own account.

   Non-Resident Employer Certification

   Under a non-resident employer certificate regime, certified employers resident in a treaty country may be exempt from deducting and remitting Canadian income tax on remuneration paid to qualified non-resident employees. 

   To qualify, employees must be residents of a country with which Canada has a tax treaty, and they must be exempt from Canadian income tax on the remuneration due to the treaty. 

   Additionally, the employees must not be present in Canada for 90 or more days in any 12-month period, or not in Canada for 45 or more days in the calendar year that includes the payment time. 

   While this certification offers relief, employers should ensure ongoing reporting and compliance to maintain eligibility.

   Regulation 102 Waiver

   For employers without non-resident certification or non-qualifying employees, a Regulation 102 waiver may be sought if the remuneration is exempt from Canadian income tax due to a tax treaty.

   Income Tax Obligations

   Having an employee in Canada may expose the employer to the risk of being considered to be “carrying on business” in Canada. 

   A non-resident carrying on business in Canada is generally liable for tax on profits from such activities, subject to any treaty exemptions. 

   Certain activities of the employee, such as soliciting orders or offering sales in Canada, may cause the employer to be deemed to be carrying on business in the country. 

   Employers entitled to treaty benefits are exempt from Canadian income tax on business profits if they do not have a permanent establishment (PE) in Canada. 

   However, certain scenarios, like employees having the authority to conclude contracts, may trigger PE status and tax obligations.

   Regulation 105 Obligations and Waiver

   When employees provide services in Canada, the employer’s customer may need to deduct and remit 15% of the payment for those services to the CRA unless a waiver is obtained. 

   Employers can apply for waivers to reduce or eliminate withholding taxes, depending on treaty provisions and income projections.

   Indirect Value-Added Taxes

   Value-added taxes (GST/HST) apply on the supply of goods and services in Canada, requiring non-resident employers to register and comply with the GST/HST regime if they make taxable supplies in the country.

   Conclusion

   In sum, remote work arrangements in Canada can create complex tax implications for non-Canadian employers. 

   Understanding and fulfilling these obligations is essential to avoid potential pitfalls and ensure compliance with Canadian tax laws. 

   Seeking professional advice can illuminate the path forward and help employers navigate the tax terrain with confidence.

   If you have any queries about this or other Canadian tax matters then please do not hesitate to get in touch.

   The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.

2. Canada: Federal Fall Update

   18 May 2022 8:22 am Leave a Comment

   Canada Federal Fall Update – Introduction

   Measures announced in the 2021 Federal Fall Economic Update will be implemented by Bill C-8. On 4 May 2022, this Bill passed its third reading in the House of Commons on 4 May 2022.

   Its contents will enact measures including:

   • the temporary Small Businesses Air Quality Improvement Tax Credit;
   • the new refundable tax credit for farming businesses; and
   • the Underused Housing Tax Act

   Other measures are also included.

   The first reading of the Bill took place on December 15, 2021.

   The temporary Small Businesses Air Quality Improvement Tax Credit

   The new Bill will include a refundable 25% tax credit for qualifying entities, which have qualifying expenditures for air quality improvements. This expenditure must have been incurred between 1 September 2021 and 31 December 2022.

   Qualifying entities will include both unincorporated sole proprietors and Canadian-controlled private corporations with taxable capital employed in Canada of less than $15 million in the tax year directly preceding it.

   A maximum of $10,000 is available in qualifying expenditures per qualifying location. The credit is capped at a maximum of $50,000 across all qualifying locations. It should be noted that these two ‘caps’ are shared amongst affiliated businesses.

   Refundable tax credit for farming businesses

   The contents of the bill also includes the new refundable tax credit to return fuel charge proceeds from pollution pricing directly to farming businesses in certain provinces.

   These provinces include Ontario, Manitoba, Saskatchewan and Alberta. The scheme started in 2021.

   The refundable tax credit is available to taxpayers who are actively engaged in either the management or day-to-day activities of farming. This includes farming enterprises that are carried out through a partnership.

   A qualifying farming business must incur total farming expenses of $25,000 and those expenses must be at least partly attributable to the provinces mentioned above.

   Underused Housing Tax Act

   The bill also includes the proposed legislation behind the Underused Housing Tax Act. This legislation will result in an annual tax of 1% on the value of vacant or underused Canadian residential real property.

   The property must be owned either directly or indirectly owned by non-resident non-Canadians.

   The new annual tax applies beginning in the 2022 calendar year.

   If you have any queries about this article, the Canada Federal Fall Update, or the matters discussed more generally, then please do not hesitate to get in touch.

   The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.