How can an American employer avoid Regulation 102 withholdings?
If there is ultimately no tax payable expected as a result of the non-resident’s employee’s earnings being exempt from Canadian tax under a tax treaty, a waiver can be obtained to eliminate the withholdings.
There are two ways in which an employer may be relieved of their obligation to withhold taxes under Regulation 102:
Option 1: Non-Resident Employer Certification
A non-resident employer can file an Application for Non-Resident Employer Certification. If approved, the employer certification allows for a blanket waiver to cover all eligible employees who are exempt from paying income tax in Canada under a tax treaty without withholding and remitting tax, eliminating the need for non-resident employees to request waivers of withholding. Non-resident employer certification will be valid for up to two calendar years.
Option 2: Regulation 102 Waiver Application
Employees resident in countries having a tax treaty with Canada that will exempt an employee’s income from tax in Canada can apply for a waiver of withholding tax by completing and filing Form R102-R, Regulation 102 Waiver Application, with the Canada Revenue Agency (CRA).
A completed and signed R102-R must be submitted 30 days before either the start of the employment services in Canada or the initial payment for the employment services