Regulation 102

Mr. X, who while living in Quebec, had been commuting to the sole permanent establishment of his employer in Quebec, from which he was paid, will now telework at his Ontario cottage three days a week, and commute to the Quebec office two days a week. He has the authority to enter into contracts for his employer.

After indicating that the employer likely would not have a deemed permanent establishment in Ontario by virtue of this arrangement unless the employer was carrying on business in Ontario through the cottage, CRA went on to state:

Even if the CRA were to conclude that … Mr. X's employer had a permanent establishment at Mr. X's cottage, that determination would not lead to the conclusion that Mr. X "reports for work" at an establishment of his employer located in Ontario for the purposes of deductions and withholdings from Mr. X's remuneration.

… [T]he deeming rules in I.T.R. subsection 400(2) … do not … extend to I.T.R. sections 100 and 102, which are relevant to determining whether an employee reports for work at an establishment of the employee’s employer located in a particular province, as well as in determining the amounts to be deducted or withheld by the employer from the employee's remuneration.

In explaining why the source deduction requirements (including graduated rates) under Reg. 102(1) would apply to Canada emergency response benefit (CERB) or Canada emergency student benefit (CESB) payments, the Directorate indicated:

• CESB/CERB payments can be provided over one or more 4-week periods and, thus, during pay periods as defined in Reg. 100(1).
• CRA considers the payments to be governmental financial assistance under s. 56(1)(r), so that they are deemed to be remuneration under para. (h) of the definition in Reg. 100(1), and so that the payer and payee are “employer” and “employee” under the Reg. 100(1) definitions.
• Although the payees would not be reporting for work, there would be a deemed establishment of the deemed employer under Reg. 100(4).

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.

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)… .

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).

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.

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.