Guidance on international income tax issues raised by the COVID-19 crisis, CRA Webpage 31 March 2021

CRA referred to the travel restrictions imposed by governments or businesses in response to the COVID-19 crisis as a safety measure for their citizens or employees (the “Travel Restrictions”) and to the administrative response of CRA (being a concession rather than an interpretive approach) which will apply from March 16 until August 31, 2020, unless extended.

Days in Canada solely because of COVID-19 Travel Restrictions not counted towards individual’s residency

Where [an individual visiting Canada] has remained in Canada solely because of the Travel Restrictions, that factor alone will not cause the Agency to consider the common-law factual test of residency to be met. In addition …the Agency will not consider the days during which an individual is present in Canada and is unable to return to their country of residence solely as a result of the Travel Restrictions to count towards the 183-day limit for deemed residency. This will be the Agency position where, among other things, the individual is usually a resident of another country and intends to return, and does in fact return, to his or her country of residence as soon as he or she is able to do so.

Participation in board meetings from Canada due to Travel Restrictions does not render the corporation or trust resident in Canada

[W]here a director of a corporation must participate in a board meeting from Canada because of the Travel Restrictions, the Agency will not consider the corporation to become resident in Canada solely for that reason. …

[W]here appropriate, the Agency will consider adopting a similar approach in determining the residency of a commercial trust.

VII. Supplemental guidance

A. Extension re individual residency

• For the initial relief period (March 16 until September 30, 2020), the guidance provides that the CRA will not consider the common-law factual test of residency to be met if an individual stayed in Canada only because of COVID travel restrictions, and the days of physical presence will not count towards the s. 250(1)(a) sojourning rule of deemed residency. This specific relief for individuals is extended until the earlier of the date of the lifting of the travel restrictions and December 31, 2021. This extension does not apply to corporate residency.

CRA referred to the travel restrictions imposed by governments or businesses in response to the COVID-19 crisis as a safety measure for their citizens or employees (the “Travel Restrictions”) and to the administrative response of CRA (being a concession rather than an interpretive approach) which will apply from March 16 until June 29, 2020, unless extended.

Days if presence in Canada due to COVID-19 Travel restrictions not counted towards PE

• CRA will not consider a non-resident entity to have a permanent establishment in Canada solely because its employees perform their employment duties in Canada solely as a result of the Travel Restrictions, or to have an "agency" permanent establishment solely due to a dependent agent concluding contracts in Canada where such activities would not have been performed in Canada but for the Travel Restrictions.

Nor towards Services PE

• Any days of physical presence in Canada due solely to Travel Restrictions will not count towards the 183-day presence test in "services permanent establishment" provision of Canada's treaties (e.g., Art. V(9)(a) of the Canada-U.S. treaty).

VII. Supplemental guidance

B. PE unlikely to arise in Canada solely because of individual's presence there due to COVID travel restrictions

• The relief in the initial relief period no longer applies regarding whether a non-resident employer has a fixed place of business in Canada. However, CRA considers that for there to be a fixed place of business in Canada, there must be a semblance of permanence to the site, and the site must be at the “disposal” of the employer. An individual’s working remotely (in Canada) from home due to the travel restrictions “will generally not be sufficient to meet the thresholds of a permanent establishment.”
• Similarly, regarding an “agency” permanent establishment, the individual would not satisfy the requirement of “habitually” exercising a right to conclude contracts on behalf of the non-resident enterprise where the individual “is doing so from Canada solely because of the travel restrictions.”
• Regarding the services permanent establishment in Art. IV(9) of the Canada-U.S. Treaty, most employees described above would not meet either of the thresholds therein “if they are not working on projects for Canadian customers.”

CRA referred to the travel restrictions imposed by governments or businesses in response to the COVID-19 crisis as a safety measure for their citizens or employees (the “Travel Restrictions”) and to the following administrative response of CRA (being a concession rather than an interpretive approach) which will apply from March 16 until June 29, 2020, unless extended.

Days if presence in Canada due to COVID-19 Travel restrictions might not count towards being considered to carry on business in Canada

• If a non-resident which is not resident in a treaty country can demonstrate that it has crossed the threshold of carrying on business in Canada only because of the Travel Restrictions, CRA “will consider whether administrative relief is appropriate on a case-by-case basis.”

CRA referred to the travel restrictions imposed by governments or businesses in response to the COVID-19 crisis as a safety measure for their citizens or employees (the “Travel Restrictions”) and to the following administrative response of CRA (being a concession rather than an interpretive approach) which will apply from March 16 until September 30, 2020, unless extended.

U.S.-residents who exercise their employment in Canada solely because of the COVID-19 Travel Restrictions will not have those days count towards the 183 days

• Where [U.S.-resident] individuals are present in Canada, and are exercising their employment duties in Canada, solely as a result of the Travel Restrictions, those days will not be counted toward the 183 day test in the Canada-United States income tax treaty.
• The same approach in applying the days of presence test will apply in the other treaties

VII: extended relief for U.S. residents exercising their employment in Canada for COVID reasons

• Relief for the initial relief period (March 16 until September 30, 2020) respecting the 183-day test in Art. XV, 2(b) of the Canada-US Treaty is extended to December 31, 2020 so that physical presence in Canada due to COVID travel reasons will not count towards the 183 days (whereas such days after December 21, 2021 must be included under the 183-day test, with associated withholding and remittance obligations of the employer).
• As an administrative matter, where such relief conditions are met, a non-resident employer will not be required to submit a T4 slip for the 2020 taxation year.

VII: extended relief for Canadian residents exercising their U.S. employment at home in Canada for COVID reasons (with Treaty-reporting alternative)

• Where as a result of the travel restrictions, Canadian-resident individuals have been forced to perform their duties for a U.S. employer from their Canadian home and (for the initial relief period) their employer received a CRA letter of authority (to reduce the Canadian source deductions at source to reflect the available foreign tax credit), as an administrative concession, CRA will treat the employment income from the U.S. employer for 2020 that was subject to U.S. withholding as having a U.S. source – so that those individuals can file their tax returns as in prior years and claim a foreign tax credit for the U.S. taxes.
• Alternatively, such individuals may choose to file their 2020 Canadian income tax return in accordance with the income sourcing rules in the Treaty, i.e., reporting their employment income as sourced from Canada since they performed their duties there.

Regarding this latter alternative:

• Where contributions are made in 2020 under the U.S. Federal Insurance Contributions Act (FICA), administratively the entire amount of the individual’s employment income on which the contributions were based may be included in the individual’s 2020 foreign non-business income for foreign tax credit purposes.
• If the individual has made contributions to a United States retirement plan in 2020, the amount deductible on form RC268 may be determined as if the individual had continued to exercise employment duties in the U.S. throughout all of 2020.
• If the individual paid state income tax in 2020, where the state refused to relinquish its right to tax the individual, administratively the individual may claim a foreign tax credit respecting those taxes despite the income being earned in Canada.
• Where such individuals temporarily find it difficult to pay the full amount owing until after the payment due date when they receive a refund of their withholdings from the U.S., CRA will cancel all or part of the interest or late-payment penalties that arise as a result until a reasonable time after the receipt of the U.S. refund.
• If, after filing their 2020 return, they receive a notification that they must remit income tax instalments in 2021 resulting from the larger than usual Canadian income tax payable for 2020, CRA will also cancel instalment penalties and interest.

CRA referred to the travel restrictions imposed by governments or businesses in response to the COVID-19 crisis as a safety measure for their citizens or employees (the “Travel Restrictions”) and to the administrative response of CRA (being a concession rather than an interpretive approach) which will apply from March 16 until June 29, 2020, unless extended.

COVID-19 required presence in Canada does not affect letter of authority

[A] non-resident employer is required to deduct withholdings at source from the salary that it pays to an employee who is a resident of Canada, regardless where the services are rendered. Where appropriate, the Agency will issue a "letter of authority" to the employee authorizing the non-resident employer to reduce the Canadian deductions at source to take into account the foreign tax credit available to the employee in respect of their foreign tax liability. …

If a Canadian resident employee of a non-resident entity is forced to perform their employment duties in Canada on an exceptional and temporary basis as a result of the Travel Restrictions and that employee has been issued a letter of authority applicable to the tax year including that period, the letter of authority will continue to apply and the withholding obligations of the non-resident entity will not change in Canada as long as there are no changes to the withholding obligations of the non-resident entity in the other jurisdiction.

Relief where COVID-19 interruption in processing waiver of Reg. 105 withholding and treaty relief was available

[W]here a Waiver Request in respect of Regulation 105 and/or Regulation 102 has been submitted to the Agency and, due to the [COVID-19] Interruption [of processing of Waivers], the Agency was unable to process the request within 30 days, the Agency will not assess a person who fails to deduct, withhold or remit any amount as required by Regulations 102 and 105, in respect of an amount paid to a non-resident person covered by the particular Waiver Request.

This relief will be available where the sole reason a non-resident person could not obtain a waiver of Regulation 102 or 105 withholdings from the Agency was due to the Interruption, and the person paying the amount can demonstrate they have taken reasonable steps to ascertain that the non-resident person was entitled to a reduction or elimination of Canadian withholding tax by virtue of an income tax treaty with Canada.

As the processing of s. 116 certificate requests was interrupted by the COVID-19 crisis and processing has only resumed with a “limited capacity,” “urgent requests for comfort letters may be submitted on a temporary basis.”