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 section 101 of the Regulations applies where a non-resident individual is employed by a Canadian corporation but performs all of the duties of employment outside of Canada.
Position: Question of fact.
Reasons: Based on the facts described in the letter, section 101 would not apply
XXXXXXXXXX
2011-039751
A. Seidel
(613) 957-2058
March 10, 2011
Dear XXXXXXXXXX :
Re: Withholding of Income Tax
This is in reply to your letter dated February 27, 2011 wherein you requested our views as to whether, based upon the facts described below, section 101 of the Income Tax Regulations (the "Regulations") would apply to the amounts paid to a non-resident employee.
Background
- The employer is a corporation ("ACo") resident in Canada whose business is software development. ACo owns certain mainframe computer equipment that is located in Canada.
- An employee ("Mr. X") of ACo is a computer programmer that performs all of his duties of employment over the internet using ACo's mainframe computer equipment. Mr. X is paid a monthly salary for his services.
- Mr. X has never been a resident of Canada, at no time is Mr. X physically present in Canada and his employment income is subject to an income tax in his country of residence.
Our Comments
Subsection 153(1) of the Income Tax Act (the "Act") requires every person that pays an amount described therein to deduct or withhold from the payment the amount determined in accordance with prescribed rules and to remit, at the prescribed time, that amount to the Receiver General. The prescribed rules are found in Part I of the Regulations.
Section 101 of the Regulations requires every person that makes a payment described in subsection 153(1) of the Act to deduct or withhold therefrom, and remit to the Receiver General, the amount, if any, determined in accordance with the rules prescribed in Part I of the Regulations. Subsection 153(1) includes the payment of salary, wages or other remuneration (other than amounts described in subsection 212(5.1)).
Sections 102 and 103 of the Regulations set out the rules for computing the amount to be deducted or withheld by an employer in respect of any payment of salary made to an employee while subsection 104(2) of the Regulations sets out certain exceptions to these general withholding requirements.
Subsection 104(2) of the Regulations provides that an employer is not required to deduct or withhold an amount from a payment made to an employee where that employee was neither employed nor resident in Canada at the time of the payment unless the payment is:
(a) remuneration described in subparagraph 115(2)(e)(i) of the Act and is paid to a non-resident person who has in the year, or had in any previous year, ceased to be resident in Canada, or
(b) remuneration reasonably attributable to the duties of any office or employment performed or to be performed in Canada by the non-resident person.
In the situation described above, by virtue of the fact that Mr. X has always been a non-resident of Canada, the monthly salary paid to Mr. X cannot be remuneration described in paragraph 104(2)(a) of the Regulations.
Notwithstanding that ACo's mainframe computer equipment is located in Canada, it is our view that Mr. X's duties of employment are not exercised in Canada. Therefore, in the situation described above, the monthly salary paid to Mr. X by ACo would not be amounts described in paragraph 104(2)(b) of the Regulations.
Since neither of paragraphs 104(2)(a) or (b) of the Regulations apply to ACo's monthly salary payments to Mr. X, sections 102 and 103 of the Regulations will not apply to require ACo to deduct or withhold any amounts from the salary payments it makes to Mr. X. However, notwithstanding that sections 102 and 103 are not applicable to payments made by ACo to Mr. X, ACo would still be required to file an information return in accordance with subsection 200(1) in respect of the salary payments to Mr. X.
Where ACo has deducted or withheld an amount from salary payments made to Mr. X, and it is determined that Mr. X's employment income is not subject to tax in Canada, Mr. X may file a return of income for the year pursuant to subsection 150(1) of the Act and claim a refund of the amounts deducted or withheld by ACo.
Yours truly,
for Director
International & Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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