Tax Tips

• Tax Tips Archive

Foreign Employees Working in Canada

Subject: Foreign Employees Number: 11-26 Date: 10/28/2011

Waiver requests are not usually granted retroactively

Regulation 102 requires employers to withhold and remit source deductions relating to employee remuneration paid for work performed in Canada, even if the employee or employer is not a Canadian resident.  The obligation applies even if a tax treaty exempts the employee from Canadian taxation.

In many cases a foreign employee's Canadian source employment income is also subject to source deductions in the foreign employee's domestic jurisdiction.  If there is no relief from these two levels of source deductions, the employee will have little "take home" pay. 

In some cases, the employer may loan the employee funds until the employee files a Canadian tax return to recover the source deductions but this strategy is not without practical problems.  An easier solution is for the employee to request that the CRA grant the employer a waiver from the requirement to withhold source deductions.

The CRA will consider granting the employer a waiver from the Regulation 102 withholding requirement in certain circumstances.  

If the foreign employee will earn less than CAD 5,000 employment income from Canadian sources in a calendar year (CAD 10,000 if the employee is a U.S. taxpayer), the employee can request a waiver by filing a form R102-J that is signed by both the employer and the employee.

If the employee will earn more than this threshold, but will be exempt from Canadian tax pursuant to a tax treaty, the employee can request a waiver by filing a form R102-R.  This form need only be signed by the employee.

Using the incorrect form or failing to file complete information can result in processing delays or outright denial.  If a waiver is not granted, or if it is obtained after the foreign employee receives pay for Canadian services, the employer will be exposed to penalties for not withholding. 

A waiver only applies for the calendar year it relates to, so a request must be made each year where the employment covers multiple years.

Waivers are not usually granted retroactively, so we recommend that they be filed at least 30 days in advance of a foreign employee beginning work in Canada.

TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.

The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.