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Canada: USco personnel: Employees of Canco?

Tuesday, 17 March 2015   (0 Comments)
Posted by: Author: Georgina Tollstam
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Author: Georgina Tollstam (KPMG LLP, Toronto)

A recent technical interpretation says that a taxpayer (Canco) that hires a non-resident corporation (USco) to provide services and equipment in Canada may be liable in certain situations for withholding, remitting income tax on the remuneration paid to USco’s employees, and filing the appropriate Canadian tax information slips. Normally, USco pays the remuneration and is responsible for withholding under subsection 153(1). But if an employer-employee relationship exists between Canco and USco’s personnel, the CRA says that Canco may be responsible for withholding as the payer of remuneration (TI 2013-0508651E5, October 2, 2014).

Generally, unless it obtains a withholding tax waiver, an employer that has non-resident employees providing services in Canada must withhold income tax, CPP (if applicable), and employment insurance from remuneration paid to non-residents as if they were Canadian residents. The TI considers whether Canco is liable for the withholding and remitting of source deductions and the reporting of these amounts for USco personnel if USco has failed to withhold and remit income taxes from the remuneration that it in fact paid to USco personnel. The USco personnel are non-residents of Canada.

The CRA notes that according to Information Circular 75-6R2, "Required Withholding from Amounts Paid to Non-Residents Providing Services in Canada,” the payer of remuneration to an employee is responsible for withholding tax, remitting it to the CRA, and reporting the amounts on the appropriate information slips. In most situations, the party that has the employees on its payroll is the payer, but on occasion the identity of the employer and thus the legal payer of the remuneration for tax purposes may not be clear. The CRA notes that paragraphs 35 to 39 of the IC address situations in which an employee is temporarily assigned from an entity in one country to an entity in another country.

The CRA says that if an employer-employee relationship exists between Canco and the USco personnel, Canco may be considered to be the legal payer of the remuneration even if the USco personnel remain on USco’s payroll and are actually paid by USco. In this situation, the CRA says that USco pays the remuneration on behalf of Canco, and thus Canco is liable for withholding and remitting tax and reporting the payments on the appropriate information slip. The CRA says that whether such an employer-employee relationship exists is a question of fact.

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