Principal Issues: The employee works for a non-resident employer outside of Canada. Does the employer have to withhold at source?
Position: Yes
Reasons: 153(1)(a) and Part I of the Regulations. There is no exemption when the employee is a resident of Canada.
XXXXXXXXXX 2004-007856
S. E. Thomson
May 6, 2005
Dear XXXXXXXXXX:
Re: Withholdings From Wages
This is in reply to your email of May 26, 2004 in which you ask for information regarding withholdings from your salary. We apologize for the delay in responding to your query.
You are a citizen and resident of Canada, but you work for a U.S. non-governmental organization in Guinea, West Africa. We assume your employer is not an agency of the United Nations. You would like to know if your employer is required to withhold deductions at source from the salary that it pays to you.
OUR COMMENTS
Where a particular transaction is ongoing, or has been completed, a determination of the tax consequences is the responsibility of the local tax services office. However, we are able to offer the following general comments on the relevant provision of the Income Tax Act (the "Act"), which may apply. Please note that these comments are general in nature, and may or may not apply in your situation. As such, the comments are not binding on the Canada Revenue Agency.
Residents of Canada are taxable in Canada on their worldwide income. Subsections 150(1) and 150(1.1) of the Act require taxpayers with employment income to file an income tax return for each taxation year on or before April 30th of the following year. For general information about how residence status is determined for purposes of Canadian income tax, please refer to the current version of IT-221 Determination of an Individual's Residence Status, available on our website at www.cra-arc.gc.ca. Or, you may contact the International Tax Services Office, Enquiries & Adjustments Division, at 1-800-267-5177 (toll free in Canada and the U.S.), or (613) 952-3741.
A non-resident employer is required to deduct withholdings at source from the salary that it pays to an employee who is a resident of Canada, regardless of where the services are rendered. Paragraph 153(1)(a) of the Act requires that every person paying salary, wages or other remuneration shall withhold from the payment the amount determined in accordance with prescribed rules, and remit that amount to the Receiver General at the prescribed time. The prescribed amount and the prescribed time are set out in Part I of the Income Tax Regulations (the "Regulations"), in particular, sections 102 and 108. Subsection 104(2) of the Regulations provides that generally no withholdings are required from payments to a non-resident who is not employed in Canada. However, there is no exemption from withholdings on payments to Canadian residents who are employed outside of Canada by a non-resident employer.
Part II of the Regulations (in particular section 200) requires every person who makes a payment of salary, wages or other remuneration to file an information return in prescribed form (e.g., a T4 slip) by the prescribed date. For more information regarding information returns, see our guide RC4120 Employers' Guide: Filing the T4 Slip and Summary Form, also available on our website.
Canada has not entered into an income tax convention with Guinea. As such, there is no relief from withholdings available under a treaty.
We trust that we have been of some assistance.
Yours truly,
Olli Laurikainen, C.A., Manager
for Director
International and Trusts Division
Income Tax Rulings Directorate