1 November 2001 External T.I. 2000-0056475 - Withholding on Payments to 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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: Withholding requirements for amounts paid by Canadian employer to US employee

Position: Depends on whether services are rendered in Canada or in the US

Reasons: If all services are rendered in the US, no withholdings are required. If services are rendered in Canada, withholdings are required, but may be waived by the TSO if treaty exempt.

XXXXXXXXXX 2001-005647
S. E. Thomson
November 1, 2001

Dear XXXXXXXXXX:

Re: Withholdings From Amounts Paid to Non-Resident Employee

This is in reply to your fax of November 10, 2000 to the Toronto North York Tax Services Office, which was forwarded to us for reply. We apologize for the delay in responding.

In your fax, you outline a scenario in which a Canadian corporation will employ an individual who is a US citizen and resident. Virtually all of the employee's services will be rendered in the US. On occasion, however, the employee may come to work in the Canadian office for brief periods. You would like to know the withholding requirements on amounts paid to the employee by the Canadian employer.

The responsibility for determining the tax consequences of ongoing or completed transactions involving specific taxpayers rests with the tax services office, and as such, we are precluded from commenting directly on your situation. However, we are able to offer general comments on the provisions of the Income Tax Act (the "Act") that may apply. Since these provisions may or may not be applicable in your situation, our comments are not binding on the Canada Customs and Revenue Agency.

If an employee is employed solely outside of Canada, and is not, and never has been, a resident of Canada, subsection 104(2) of the Income Tax Regulations (the "Regulations") provides that no withholdings are required. This provision will not apply, however, in respect of any remuneration reasonably attributable to the employee's duties that are performed in Canada. In the latter case, withholdings are required as set out in subsection 153(1) of the Act, and section 102 of the Regulations. (Note that section 105 of the Regulations does not apply to salary paid to an employee.) For a discussion of situations where an employee renders services partly inside and partly outside of Canada, please see paragraphs 6 and 7 of Interpretation Bulletin IT-420R3 Non-Residents - Income Earned in Canada, available on our website at www.ccra-adrc.gc.ca.

The requirement to withhold under section 102 of the Regulations may be waived if the employee is exempt from Canadian tax pursuant to the Canada - US Income Tax Convention (the "Treaty"). For example, paragraph 2(a) of Article XV of the Treaty provides that remuneration derived by a US resident for employment exercised in Canada that does not exceed CAN$10,000 in a calendar year will be taxable only in the US. An application for a waiver from withholding and any questions regarding withholding and reporting should be made to the relevant tax services office.

Note that subsections 150(1) and (1.1) of the Act require that the non-resident employee file a tax return in Canada if he or she has tax payable under Part I of the Act. Tax may be payable under Part I of the Act if, for example, the non-resident has income from employment performed in Canada, and Article XV of the Treaty does not apply to exempt the income from tax.

We trust that we have been of some assistance.

Yours truly,

Olli Laurikainen
for Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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