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: Whether a non-resident corporation would have to get a business number if it participates in an Interchange Canada program by sending a non-resident employee to Canada to render services for a year?
Reasons: On the proposed facts, it appears that the non-resident corporation would be rendering services in Canada. As a result, both the non-resident corporation and the non-resident employee would have filing requirements in Canada.
November 27, 2017
Income Tax Rulings Directorate
S. E. Thomson
Interchange Canada – Requirement to obtain a Business Number
This is in reply to your email of November 8, 2017 regarding the requirement for XXXXXXXXXX corporation (“NRCo”) to register with the Canada Revenue Agency (“CRA”) for a business number if it were to participate in the Interchange Canada program. Details of the Interchange Canada program are available at https://www.canada.ca/en/treasury-board-secretariat/services/professional-development/interchange-canada.html.
You explain that your department proposes to enter into an Interchange Agreement with NRCo and XXXXXXXXXX resident individual who is currently an employee of NRCo. Under the proposed Interchange Agreement, the employee would provide services to your department for one year. The employee would live and work in Canada throughout the term of the Interchange, and would obtain temporary accommodation here. However, he would remain resident in his home country for tax purposes.
It is our understanding that under the proposed Interchange Agreement, the employee would remain an employee of NRCo, and would remain on NRCo’s payroll. The employee would not enter into an employee-employer relationship with your department.
Your department would reimburse NRCo for the employee’s salary and benefits. In addition, NRCo would not charge fees for managing the administrative requirements of the assignment or participant (i.e. the employee) (section 4.4 of the Directive on Interchange Canada); therefore, we assume that NRCo would not derive a profit from the Interchange.
Based on our understanding of the proposed Interchange Agreement, NRCo would have to register with the CRA and obtain a business number, for the reasons that follow.
Whether or not the employee would become resident in Canada for tax purposes while he is working in Canada is a question of fact. For more information, see Determining Your Residency Status at https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/information-been-moved/determining-your-residency-status.html. For purposes of this memo, we assume that the employee would remain a resident of his home country, and would not become a resident of Canada for tax purposes.
Determining whether the employee is in an employee-employer relationship with NRCo or with your department is also a question of fact. For more information, see Employee or Self-employed at https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4110-employee-self-employed.html. For purposes of this memo, we assume that the employee would remain an employee of NRCo, and would not enter into an employee-employer relationship with your department.
Carrying on Business in Canada
Determining whether or not NRCo is carrying on business in Canada is also a question of fact. In our view, 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, based on our understanding of the facts, NRCo would be carrying on business in Canada.
T2 Corporation Tax Return
Under paragraph 150(1)(a) of the Income Tax Act (the “Act”), a non-resident corporation that carries on business in Canada is required to file a T2 Corporation Income Tax Return. For more information, see T2 Corporation - Income Tax Guide – Before You Start at https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4012/t2-corporation-income-tax-guide-before-you-start.html. 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.
For information on GST/HST, see GST/HST Policy Statement P-051R2, Carrying on Business in Canada at https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/p-051r2/p-051r2-carrying-on-business-canada.html. You are welcome to discuss your situation with Jeff Frobel, Manager, Border Issues, Excise and GST/HST Rulings Directorate, (613) 670-9875.
Rendering Services in Canada
Under paragraph 153(1)(g) of the Act and subsection 105(1) of the Income Tax Regulations (the “Regulations”), every person paying an amount for services rendered by a non-resident person in Canada (other than a payment of remuneration to an employee) must withhold 15 percent of the payment, and remit that amount to the CRA. In addition, the payer (i.e. your department) is required to issue to the non-resident person (i.e. NRCo) a T4A-NR Statement of Fees, Commissions, or Other Amounts Paid to Non-Residents for Services Rendered in Canada.
The 15 percent withholding is not a final tax. If NRCo determines that it would not have a profit from carrying on business in Canada, it may apply for a waiver to reduce or eliminate the withholding requirement.
For more information on this topic, see Rendering Services in Canada at https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/information-been-moved/rendering-services-canada.html.
Under subsection 102(1) of the Regulations, NRCo would be required to withhold Canadian income tax from the remuneration that it pays to the employee that is reasonably attributable to the employment duties performed by the employee in Canada. For more information, see https://www.canada.ca/content/dam/cra-arc/migration/cra-arc/E/pub/tg/t4001/t4001-16e.pdf. NRCo would not be required to deduct employment insurance premiums if the employee remains a resident of his home country and pays into an unemployment insurance plan there. In addition, NRCo would not be required to deduct Canada Pension Plan contributions if it obtains a Certificate of Coverage for the employee from the government of the employee’s country of residence. For more information on the Certificate of Coverage, see https://www.ssa.gov/international/Agreement_Pamphlets/canada.html.
Personal Tax Return
Under subparagraph 115(1)(a)(i) of the Act, the employee would be taxable on his income from employment exercised in Canada. As such, the employee would have to file a T1 Income Tax and Benefit Return for the year unless one of the exceptions applies. For more information, see Do You Have to File a Return? at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/you-have-file-a-return.html.
In order to file a T2 Corporation Tax Return, register for GST/HST, remit payroll deductions and obtain a Regulation 105 Waiver, NRCo would have to obtain a business number from the CRA. For more information about obtaining a business number, see the webpage https://www.canada.ca/en/services/taxes/business-number.html.
We trust that we have been of assistance. If you have any further questions, please contact Sherry Thomson at the number above.
Sherry E. Thomson, CPA, CGA
for Division Director
Income Tax Rulings Directorate
Legislation Policy and Regulatory Affairs Branch
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