Regulation 102 - Periodic Payments

Administrative Policy

2015 Ruling 2014-0542411R3 - Carrying on business in Canada and PE

payroll reimbursement payments under employee secondment arrangement not subject to Reg. 105

Many of the risks and financial benefits of two large Canadian construction “Projects” will be those of a non-resident company (“ForCo”) (which is a treaty resident of an unnamed country), while at the same time a permanent establishment of ForCo in Canada under the Treaty will be avoided. A Canadian sister company of ForCo (“CanCo”) entered into the Project contracts, but subcontracted to ForCo the work that did not entail direct construction or installation work.

However, various ForCo employees are key to the Projects, including the construction work, which in theory will be carried on only by CanCo. Their involvement will be handled in two ways. Some of ForCo’s employees will be “seconded” to the ForCo, so that they will be treated as CanCo employees, notwithstanding that they will stay on the ForCo payroll. Second, in the case of ForCo employees whose role does not require them to attend the construction sites, they will come to the CanCo offices (outside the construction sites) for meetings, which are stipulated to “never exceed an aggregate of 90 days over any 12 month period.”

CRA ruled that there will be no Reg. 105 withholding on the payroll reimbursement payments made by CanCo to ForCo.

Locations of other summaries Wordcount
Tax Topics - Treaties - Income Tax Conventions - Article 5 PE in Canada of ForCo avoided through seconding employees to its Cdn sister and meeting in Canada up to 90 days annually only offsite 513
Tax Topics - Income Tax Act - Section 5 - Subsection 5(1) seconded employees respected as employees notwithstanding their payroll is paid by (and reimbursed to) ForCo 57
Tax Topics - Income Tax Act - Section 247 - New - Subsection 247(2) no mark-up on cross-border payroll reimbursement represented to accord with s. 247 101

Subsection 102(1)

Administrative Policy

27 November 2017 External T.I. 2017-0731441E5 - Interchange Canada and Business Number

NR company seconding employee to Canada subject to Reg. 102 withholding requirement but not EI or CPP

Under the proposed Interchange Agreement with a non-resident corporation (“NRCo”) and a non-resident employee of NRCo, the employee will provide services to the Department for one year while staying at temporary accommodation in Canada, but will remain a non-resident, as well as remaining on the NRCo payroll as an NRCo employee. The Department will reimburse NRCo for the employee’s salary and benefits (with no mark-up thereof). CRA stated:

Under subsection 102(1) … 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. … 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.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 150 - Subsection 150(1) - Paragraph 150(1)(a) a non-resident corporation is carrying on business in Canada by virtue of being the legal employer of an employee seconded to Canada 163
Tax Topics - Income Tax Act - Section 2 - Subsection 2(3) - Paragraph 2(3)(b) NR corp carrying on business in Canada by virtue of being reimbursed for payroll costs of seconded employee 130
Tax Topics - Income Tax Regulations - Regulation 105 - Subsection 105(1) salary reimbursement payments made to seconding NR employer subject to withholding 107

4 February 2016 Internal T.I. 2015-0620821I7 F - Withholding of income tax at source

actual establishment if it requires 20% of the employee’s time

What is meant by “reports to work” in Reg. 102(1). CRA responded (TI translation):

Generally, a place of work is not an establishment of an employer unless the latter is the owner or tenant. Thus, a telecommuter with a home office would not be considered to be reporting to work at an establishment of the employer when exercising his or her functions. …

Generally, the CRA considers that a presence on a weekly basis at the establishment of the employer, for a duration of the equivalent of a typical day’s work of the employee in fulfilling the employee’s normal workload, is sufficient to lead to a conclusion that the employee reports to work there. …

[A]n employee who is not considered as reporting to a given establishment of the employer will be deemed to report for work at the establishment of the employer from which the remuneration is paid by virtue of subsection 100(4)… .

16 June 2014 External T.I. 2013-0515431E5 - International traffic and airline enterprise

Reg. 102 withholding or waiver notwithstanding Treaty exemption

During peak season, Canco, which transports passengers to destinations inside and outside Canada, is supplied planes and non-resident pilots and crew by an arm's length U.K. resident ("Forco") to transport Canco's passengers. Forco is a U.K. resident under the Canada- U.K. Convention as well as being effectively managed and controlled there, and does not have a permanent establishment in Canada. The pilots and crew are employed by Forco and are not present in Canada for more than 183 days in any 12 month period.

Notwithstanding that the U.K.-resident employees may be exempt from Canadian tax under Art. 15, para. 2, the withholding obligation under s. 153(1)(a) and Reg. 102 "extends to non-residents of Canada employing non-residents for services performed in Canada, and therefore to Forco's crew members in such circumstances." However, here all of the conditions provided in Art. 15, para. 2 appear to be met so that Forco's crew members will generally be entitled to obtain a waiver under Reg. 102 (Form R102-J).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 115 - Subsection 115(1) - Paragraph 115(1)(a) - Subparagraph 115(1)(a)(i) application of Sutcliffe/Price allocation approach were s. 115(3) not applicable 140
Tax Topics - Income Tax Act - Section 115 - Subsection 115(4) non-resident's provision of crew and aircraft to Canadian airline 140
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - International Traffic non-resident's provision of crew and aircraft to Canadian airline 103
Tax Topics - Income Tax Act - Section 81 - Subsection 81(1) - Paragraph 81(1)(c) non-resident's provision of crew and aircraft to Canadian airline 103
Tax Topics - Treaties - Income Tax Conventions - Article 15 U.K company's provision of crew to Canadian airline/Reg. 102 withholding or waiver notwithstanding Treaty exemption 285

22 March 2012 Internal T.I. 2012-0436311I7 - payroll withholdings by non-resident employer

obligation of non-resident without Canadian business to withhold

Respecting a query as to whether 2010-0338561I7 applied to an employer who does not directly or indirectly do business in Canada, the Directorate stated:

It is clear that a non-resident employer which has hired a Canadian resident individual to render services only in the US, has an obligation to withhold the Canadian payroll deductions pursuant to paragraph 153(1)(a) of the Act (regardless of whether or not the non-resident employer directly or indirectly carries on business in Canada)....Paragraph 102(1)(a) of the Regulations states that an employer must deduct and withhold Canadian income tax from any payment of remuneration made to an employee where the latter reports for work at an establishment of the employer, including an establishment locted outside Canada...The non-resident employer is not relieved of its obligation to withhold Canadian payroll deductions by the fact that it has withheld US payroll deducitons from the wages it pays the Employee.

7 December 1999 Miscellaneous 1999-0007810 - Application of subsection 17(2)

Although directors fees are salaries and wages for tax purposes and, therefore, are subject to Article XV of the Canada-U.S. Convention rather than Article XIV, it is RC's administrative practice to permit fees paid to a non-resident director for services rendered in Canada to be withheld at the flat rate of 15% specified in Regulation 105.

IC75-6R2 "Required Withholding from Amounts Paid to Non-Resident Persons Performing Services in Canada"

Articles

Anu Nijhawan, "Source Withholdings: Non Resident Employees 'Visiting' Canada", Taxation of Executive Compensation and Retirement, Vol. 15, No. 9, May 2004, p. 412.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 153 - Subsection 153(1.1) 0

Forms

R102-J "Regulation 102 Treaty Based Waiver Application - Joint Employer/Employee"

Use this form if you are a non-resident employee seeking treaty-based tax relief from Regulation 102 withholding while providing employment services in Canada during the calendar year and you are a resident of:

  • the United States and are expected to earn no more than CAN $10,000;
  • or another country that has a tax treaty with Canada and are expected to earn no more than CAN $5,000.

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