Sending Employees into Canada
As the world’s economy grows, so too does the commerce across borders. Located minutes from North America’s most economically-significant border crossing, MCO Partners focuses much of its efforts on aiding U.S. employers to navigate the complex and time-intensive process of sending employees into Canada. The cash flow implications of non-filed tax waiver forms can be very significant, as can the penalties associated with the late-filings of the associated forms.
When sending employees into Canada, a few steps are important. All employees who travel to work in Canada must obtain an identification number in Canada, known as an Individual Tax Number, by completing form 1261. For each day that they are employed in Canada, tax must be withheld and remitted to the Canada Revenue Agency (“CRA”) by the 15th of the following month (earlier in some situations). However, the tax withholding requirement may be avoided by filing form 102J for each employee who will be crossing the border, requesting relief from tax under the treaty between Canada and the U.S. This form asks for the expected length of time to be spent in Canada by the employee, and the earnings associated with those days. If the employee is expected to earn less than $10,000 while working in Canada, the waiver will generally be approved. In many situations, the CRA will also administratively approve a waiver for an individual expected to work fewer than 183 days in Canada in the year. A waiver will not be approved for an employee who is expected to earn more than $10,000 and work more than 183 days in the year. The CRA will administratively accept waivers filed within 60 days of the employee’s start date in Canada.
At the end of each calendar year, the foreign employer has several tax-filing obligations. The first is the completion of T4 forms, summarizing the income earned by each employee during his/her employment in Canada during the year, as well as any withholdings from that income. These forms are due by February 28th after the end of the calendar year. The second requirement is the filing of a T2 corporate income tax return, summarizing the employer’s economic activity in Canada for the calendar year. This return is due within six months of the employer’s fiscal year end.
In addition, the employee must file a T1 personal income tax return, summarizing his/her earnings in Canada, and whether those earnings are exempt from tax for the year. This return is due by April 30th following the calendar year in which the income is earned.
This is a non-exhaustive summary of the most significant issues facing non-resident employers who are sending employees into Canada. If you are considering sending employees into Canada, contact us today to help structure your internal records to make the step as painless as possible. If you have already sent employees into Canada, and have not yet become compliant with your tax-related filings, we can discuss whether the CRA’s voluntary disclosure program is available to you to avoid expensive penalties.