CRA finds that a non-resident corporation is carrying on business in Canada by virtue of being the legal employer of an employee seconded to Canada

A non-resident employee of a non-resident corporation (NRCo) will work for a year at a Canadian government department while remaining on the NRCo payroll as an NRCo employee. The Department would reimburse NRCo for the employee’s salary and benefits (with no mark-up thereof). In finding that NRCo would be required to file a T2 return by virtue of carrying on business in Canada, CRA stated:

[A] non-resident employer that sends an employee to Canada to exercise employment duties for the employer for one year would generally be rendering services in Canada. As such … NRCo would be carrying on business in Canada.

… We are not aware of any exceptions to the requirement to file a T2 where the non-resident corporation has no profit from the business carried on in Canada.

The reimbursement payments also would be subject to Reg. 105 withholding, and NRCo would be required to remit Canadian income tax withholdings (but likely not EI or CPP) on the employee’s remuneration.

Neal Armstrong. Summaries of 27 November 2017 External T.I. 2017-0731441E5 under s. 150(1)(a), Reg. 105(1) and Reg. 102(1).