By Haroon Khan, CPA, CA (Canada), CPA (USA)
If you’re a non-Canadian corporation, partnership, or individual planning to conduct business in Canada without a Canadian subsidiary then this blog is for you. Here we’ll provide a step-by-step guide on the tax regulations and laws that are applicable to your business. It’s important to note that even if your income earned in Canada is exempt due to a tax convention between Canada and your home country (referred to as the “Tax Treaty”) there are still tax compliance requirements that must be fulfilled. Neglecting these requirements could result in penalties and the loss of taxes.
Here are the recommended steps to follow:
1. Seek advice to determine whether you qualify as “carrying on business” in Canada for income and indirect tax purposes (such as GST/HST/QST). It’s essential to understand the distinction between carrying on business “in” or “with” Canada. If your business falls under the category of “with” Canada, there are no tax filing obligations, and no further action is necessary.
2. If your business involves permanent establishment (PE) in Canada, according to Article V of the Tax Treaty then you are subject to income taxes and employee withholding taxes in Canada. You will not be eligible to apply for any tax exemptions (mentioned below).
3. If you conduct business in Canada without having an establishment (PE) you qualify for the benefits outlined in the Tax Treaty. However, to access those benefits it is necessary to submit returns and waivers, to the Canada Revenue Agency (“CRA”).
4. In case you are engaged in business activities within Canada you must obtain a CRA business number. It usually takes around 3 to 4 weeks for the CRA to issue this number. It is advisable to apply for the CRA business number as you become aware of customer engagement in Canada even before your employees arrive in Canada.
5. Acquire the general blanket employee withholding tax waiver (RC473). If you have an approved RC473 waiver you won’t have to withhold and remit taxes for employees who will be in Canada for less than 45 working days in the year or will spend less than a total of 90 days in Canada during any rolling 12-month period starting or ending in the current year.
6. Once you have finalized your list of employees working in Canada, please begin their applications for social insurance or individual tax identification numbers (SIN/ITN). Service Canada will process these applications within 8 to 10 weeks. However, if certain employees qualify for an exception, from withholding tax as explained earlier (in point number 5) there is no need to apply for these numbers on their behalf.
7. Once the employees have obtained their SIN/ITN and who are eligible, apply for their Regulation 102 waivers.
8. If you fail to secure these waivers on time, you will have to withhold and remit payroll withholding taxes to the CRA. However, if eligible, claim these amounts as a refund when filing tax returns at the end of the year on behalf of your employees.
9. It is crucial to acquire a Regulation 105 waiver before receiving payment for your services in Canada. If you do not possess a Reg 105 waiver, your Canadian client will be obliged to withhold 15% tax from their payment to you (an additional 9% if in Quebec). However, this withheld tax amount can be refunded when completing your income tax return in Canada at the end of the year.
To sum up, sending employees to work in Canada can be complex due to compliance requirements related to income taxes indirect taxes and payroll withholding taxes that need attention at times. Seeking advice is highly recommended to avoid penalties.
Contact Us Today at info@ictax.ca
