9 March 2017 External T.I. 2016-0677351E5 - Withholding on remuneration paid to a non-resident

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: 1. Obligation, if any, of a corporation resident in Canada to withhold income tax from the remuneration paid to a non-resident who does not perform any services in Canada. 2. If there is no obligation to withhold, whether a T4 or other information slip is required to be prepared.

Position: 1. No withholding required. 2. A T4 must be prepared and filed.

Reasons: 1. No withholding where non-resident does not perform services in Canada. Attendance at director's meetings by telephone or internet does not, in and of itself, constitute performing services in Canada. 2. Regulation 200(1) requires preparation of T4 where employment remuneration is paid.

XXXXXXXXXX								2016-067735
									K. Graham
March 9, 2017

Dear XXXXXXXXXX

Re: Withholdings from director’s fees and salary paid to a non-resident

We are writing in reply to your letter of November 21, 2016 in which you asked whether an employer is required to withhold income tax from the remuneration paid to a non-resident of Canada and if not, whether the employer is obligated to prepare and report the income on a payroll slip (such as a T4, T4A, T4A-NR or other).

You presented a scenario involving a corporation resident in Canada that would pay a salary and director’s fees to a non-resident individual who would also be a shareholder of the corporation. The individual would be a resident of the United States of America, and would not enter Canada in the course of performing his employment or director duties. The individual would participate in meetings from outside Canada using the telephone or internet.

This technical interpretation provides general comments about the provisions of the Income Tax Act (“Act”) and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC70-6R7, Advance Income Tax Rulings and Technical Interpretations, however, we offer the following general comments, which may be of assistance to you.

Please note that all legislative references in this letter are to the Act or the Income Tax Regulations (“Regulations”), unless otherwise specified.

Our Comments

Under subsection 248(1) of the Act, an “employee” includes an officer, an “officer” includes a person holding the office of a corporation director, and “employed” means performing the duties of an office or employment. As such, the comments below apply equally to remuneration in respect of the duties of an employee and the duties of a director of a corporation.

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 Regulations provides that no withholdings are required. This exception from withholding requirements will not apply, however, in respect of any remuneration reasonably attributable to the employee’s duties that are, or are to be, performed in Canada.

In the situation you presented, the individual in question would not attend any meetings or perform any functions in Canada. Where the participation in meetings would occur from outside of Canada using either the internet or the telephone, this would not, in our view, constitute the performance of services in Canada. As such, in the situation you presented, pursuant to subsection 104(2) of the Regulations, the corporation resident in Canada would not be required to make withholdings from the remuneration paid to the non-resident individual.

Regarding your second question, pursuant to subsection 200(1) of the Regulations, every person who makes a payment described in subsection 153(1) of the Act shall make an information return in prescribed form. This requirement is not conditional upon the payee being taxable in Canada.

The remuneration that would be paid in the situation you presented would be a payment described in subsection 153(1) of the Act. Therefore, the corporation resident in Canada would be required to file a form T4 information return under subsection 200(1) of the Regulations in respect of the non-resident individual’s total remuneration. That being said, as outlined in Chapter 2 of RC4120, Employers’ Guide – Filing the T4 Slip and Summary, an employer is not required to fill out a T4 slip for an individual if the remuneration paid during the year is less than $500.

We trust these comments are of assistance.

Yours truly,

Lori Michele Carruthers, CPA, CA
Section Manager
for Division Director
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch