CROSS BORDER RESOURCES

Regulation 102: Three Things to Know as a Non-Resident

This post is also available in: Français (French)

What is Regulation 102?

Regulation 102 is a Canadian tax regulation that applies when non-resident employees are paid to perform services in Canada.

Regulation 102 states that when a non-resident employee is paid for rendering services in Canada, their employer is subject to the same withholding, remitting, and reporting obligations as those for Canadian resident employees. Regulation 102 withholdings are not necessarily the final amount of Canadian taxes that the employees owe; rather it is an instalment against the taxes that they might ultimately need to pay. What are my obligations as an Employer?

  • Withhold and Remit Taxes

As an employer paying an employee providing services in Canada, you need to withhold and remit withholding tax and potentially other source deductions (e.g. Canada Pension Plan contributions, Employment Insurance Premiums) unless a waiver of withholding tax has been issued by the Canada Revenue Agency (CRA).

Note that these obligations extend to non-residents of Canada employing either resident or nonresident employees for services performed in Canada.

These deductions on behalf of the non-resident employee must be remitted, together with the applicable employer’s portion, to the employer’s CRA business number account. Warning: If an employer does not deduct and remit an amount as required by Regulation 102, they will be held liable for the whole amount (both employer and employee portions) together with any interest and penalties.

  • File a T4 Information Return

Employers are required to prepare and file a T4 Information Return (T4 Slips and Summary Form) with the CRA, reporting all amounts paid to their employees whether or not a waiver of withholding was received from the CRA. The filing deadline is the last day of February in the year following the year in which the payments were made. They must also send each an employee a copy of their T4 information slip by the last day of February.

How do employees Recover Amounts withheld under Regulation 102?

Regulation 102 withholding does not represent a final tax of the non-resident employee; rather, its an instalment against the taxes that they might ultimately need to pay.

Non-resident employees are normally required to file a Canadian income tax return to calculate their tax liability or to obtain a refund. The ultimate tax liability will be determined after the assessment of the non-resident’s Canadian income tax return.

The deadline for individuals earning employment income in Canada to file a T1 Individual Income Tax Return is April 30th of the following calendar year.

Non-resident income tax returns should be sent to:

International Tax Services Office
2204 Walkley Road
Ottawa ON K1A 1A8
Canada

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 employees 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.

 

Need Help?

We have expertise in assessing filing requirements, applying for waivers and filing personal income tax returns to recover Regulation 102 withholdings.

Contact us for a free consultation regarding your Regulation 102 issues:

UHY Victor LLP Canada U.S. Tax Team

crossbordertax@uhyvictor.com
(514) 282-0067

 

Additional Resources

UHY Victor Response to the Spread of COVID-19

UHY Victor is taking action to maintain the health and welfare of our team, our clients and support communal efforts to respond to the coronavirus pandemic.

UHY Victor will remain open during this difficult period and client services will continue. We have implemented contingency plans which allow us to continue to operate as we all deal with the spreading pandemic.

In light of the present situation we have introduced the following measures:

  • Our staff and procedures have been structured so that our team can work remotely.
  • Our IT infrastructure and data are protected by cutting edge security systems.
  • To the extent possible, client meetings will be held through web meetings and other remote solutions.
  • Employees who experience the primary symptoms such as fever, cough and respiratory difficulties will work remotely until cleared.
  • Internally, we emphasize the importance of “social distancing”, and have enhanced our internal cleaning and disinfecting protocols.

UHY Victor will continue to monitor the changing situation and, will respond proactively as this major health challenge evolves.

We encourage all to stay informed and to visit the Public Health Agency of Canada COVID-19 site, and follow the guidelines set out by the government of Canada:

  • Now and always during cold and flu season, stay home if you are sick. Encourage those you know are sick to stay home until they no longer have symptoms.
  • Since respiratory viruses, such as the one that causes COVID-19, are spread through contact, change how you greet one another. Instead of a handshake, a kiss or a hug, a friendly wave or elbow bump is less likely to expose you to respiratory viruses.
  • Practice frequent hand hygiene and coughing and sneezing etiquette. Clean and disinfect frequently touched objects and surfaces, such as toys and door handles.

For more information on the guidelines of the Government of Canada on how to be prepared for COVID-19: Click here.

 
 
Share via
Copy link
Powered by Social Snap