19 April 2012 External T.I. 2012-0437011E5 - Online courses taught by non-residents

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: A university is proposing to recruit non-resident individuals to teach online courses outside of Canada. Are these non-resident individuals considered employees or independent contractors? What are the responsibilities of the University with respect to withholding taxes, if any?

Position: 1. Employee/Self Employed issue is a question of fact. 2. Question of fact but likely no withholdings required.

Reasons: 1.N/A 2. Withholding may be required if amounts are a) paid to a non-resident employee performing services abroad who was previously a resident of Canada or b) paid to an independent contractor in respect of services rendered in Canada.

XXXXXXXXXX
				2012-043701
				W. Doiron

April 19, 2012

Dear XXXXXXXXXX :

Re: Online courses performed by non-residents

This letter is in response to your fax request regarding the recruitment of non-resident individuals. Specifically you have asked the following questions regarding a XXXXXXXXXX university’s (“University”) proposal to recruit non-resident individuals to teach online courses outside of Canada:

• Are these non-resident individuals considered employees or independent contractors?
• What are the responsibilities of the University with respect to withholding taxes, if any?

We are unable to comment on your specific situation; however, we are prepared to offer the following general comments which may be of assistance.

For purposes of the Income Tax Act (the “Act”), the determination of whether the relationship between parties is that of employer/employee or an independent contractor is a question of fact and will be dependant upon the contract between the University and the non-resident individual. The Canada Revenue Agency (“CRA”) relies on the basic tests developed by the courts in deciding whether a particular contract is a contract of services (employer/employee relationship) or a contract for services (client and independent contractor relationship). These tests generally consist of the control test, the integration test, the economic reality test and the specified results test.

Guide RC 4110, Employee or Self-Employed provides guidelines for determining whether a person is an employee or a self-employed individual. Where either the recipient or the payer are not sure of the employment status either party can request a ruling from the CPP/EI Rulings Division at their local tax services office to have the status determined by completing Form CPT1, Request for a Ruling as to the Status of a Worker Under the Canada Pension Plan and/or the Employment Insurance Act. This form can be obtained on the CRA website at www.cra.gc.ca/forms or by calling 1-800-959-2221.

As the nature of the relationship has not been determined, we can only provide general comments regarding any withholding tax requirements under Canadian taxation.

Amounts paid to a non-resident employee

Under subsection 153(1) of the Act, an employer is required to deduct withholdings atsource from remuneration that it pays to an employee who is a resident of Canada, regardless of where the services are rendered. Detailed rules are contained in sections 101 and 102 of the Income Tax Regulations (“Regulations”). These rules apply equally to resident and non-resident employers. In addition, withholdings are required from all remuneration paid to non-resident employees in respect of employment exercised in Canada.

Under section 104 of the Regulations, no amount need be deducted or withheld from remuneration paid to an employee who is neither employed nor resident in Canada unless the exceptions in paragraphs 104(2)(a) or (b) apply. Paragraph 104(2)(a) covers income from employment paid by a Canadian resident employer for services performed in Canada by a non-resident employee who has in the year or in any previous year ceased to be a resident in Canada. Paragraph 104(2)(b) covers income from employment attributable to duties of an office or employment performed or to be performed in Canada by the non-resident. If one of these exceptions apply at the time of payment, withholding is required.

Amounts paid to a non-resident independent contractor

Section 105 of the Regulations subjects fees, commissions or other amounts paid to a non-resident of Canada to a 15% withholding tax if such payments are made in respect of services rendered in Canada. Based on section 105, no amount need be deducted or withheld by a Canadian payor if services of a non-resident are rendered outside of Canada.

Information Circular 75-6R2, Required Withholding from Amounts Paid to Non-Residents Providing Services in Canada, provides further information regarding the required withholding from amounts paid to non-residents providing services in Canada.

We trust these comments will be of some assistance.

Yours truly,

Lita Krantz, CA
Assistant Director
International Division/ Division des opérations internationales
International Section III
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch