Revised exemption for non-resident employer withholding provides an alternative ephemeral-presence test and eliminates no-PE requirement

The 2015 Budget introduced an exemption to the Regulation 102 withholding requirement in respect of payments made by "qualifying non-resident employers" to "qualifying non-resident employees." A "qualifying non-resident employees” was a Treaty-exempt non-resident employee who satisfied a test requiring that the employee not be present in Canada for 90 or more days in any 12-month period in which the remuneration was paid. The July 31, 2015 draft legislation now indicates that the ephemeral presence test also will be satisfied if the employee works in Canada for less than 45 days in the calendar year that includes the time of payment. This is an improvement, as many employers may be better able to monitor "work days" than simple presence in Canada.

Another improvement is that the (Treaty-resident) employer no longer is required to not carry on business in Canada through a permanent establishment. However, T4 reporting is still required even where the new withholding exemption is applicable.

Neal Armstrong. Summary of Dov Begun, "Foreign Employers Sending Non-Canadian-Resident Employees to Canada to Work on short-Term Projects May Benefit from Proposed Changes Introduced in the 2015 Federal Budget and Clarified on July 31, 2015," Tax Management International Journal, 2015, p. 634 under s. 153(6) – qualifying non-resident employee.