1. Subject to the application of a tax treaty, non-residents are subject to Canadian income tax on income from employment earned in Canada.  The duration of employment in Canada is not relevant to liability for income tax.  The non-resident may be required to file a Canadian income tax return. 
  2. An employee who is resident in a country other than Canada may be found to be a Canadian resident, even if the employee is a citizen of his/her home country.  Subject to the application of a tax treaty, as a Canadian resident, the employee will then be subject to Canadian income tax on his/her worldwide income. 
  3. Tax planning should be considered regarding remuneration (including non-cash remuneration) earned by, but not paid to, the non-resident employee prior to assuming duties in Canada. 
  4. Absent a waiver from the Canada Revenue Agency (the "CRA"), a non-resident company ("NRCo") paying remuneration to a non-resident employee performing services in Canada is required to withhold income tax from remuneration paid to the non-resident employee and remit the tax withheld to the CRA. This obligation applies regardless of withholding that may be required in the employee's home jurisdiction (i.e., the possibility of double withholding exists).
  5. Depending on the facts, withholding, paying and remitting obligations may also exist with respect to Canada Pension Plan ("CPP") contributions and Employment Insurance ("EI") premiums.  Assumptions must not be made that CPP and EI obligations do not exist for a non-resident employee. 
  6. NRCo must prepare T4 information returns reporting the remuneration and payroll taxes withheld and file such returns with the CRA.  T4 information returns must also be issued to the non-resident employee. 
  7. If NRCo fails to withhold and remit payroll taxes, as required, NRCo (and its directors) may be assessed for the taxes which should have been withheld, plus interest and penalties.  Penalties and interest may also be assessed for failing to issue and file T4 information returns.
  8. NRCo may be found to be carrying on business in Canada by virtue of the activities of NRCo's employee in Canada.  Subject to a treaty exemption, if NRCo is carrying on business in Canada, it is subject to Canadian income tax on its Canadian business income and is required to file a Canadian income tax return.  Also, regardless of any treaty exemption, NRCo will likely be required to become registered for Canada's federal value-added tax ("GST/HST"), which will have major ramifications on how the NRCo business accounts for tax in Canada.
  9. If a tax treaty applies, NRCo will not be liable for Canadian income tax if it does not carry on business in Canada through a "permanent establishment".  The presence and activities of the non-resident employee in Canada and the activities of NRCo in Canada may create a permanent establishment for NRCo in Canada and liability for Canadian tax.  Even if no permanent establishment exists, NRCo will be required to file a treaty-based income tax return with the CRA (penalties and interest may apply for failing to file a Canadian income tax return when required to do so).
  10. Reimbursement by a Canadian entity to NRCo for the cost of the non-resident employee's remuneration for services rendered in Canada will give rise to a 15% withholding obligation.  The 15% withheld must be remitted to the CRA.  If the Canadian entity fails to withhold, it can be held liable for the 15%, plus penalties and interest. 
  11. Depending on the facts, NRCo may be eligible for a refund of this 15% withholding tax.  But NRCo will be required to file a Canadian income tax return to claim the refund and there are time limits for doing so.
  12. Payments by NRCo to another non-resident in respect of services rendered in Canada will give rise to a 15% withholding obligation being imposed on NRCo.
  13. Planning may be undertaken to minimize the Canadian income tax risks to NRCo and the non-resident employee.  For example, consideration may be given to a written secondment agreement, incorporation of a Canadian subsidiary or a formal transfer of the non-resident employee. 
  14. Advice should be sought prior to the non-resident employee commencing employment in Canada to minimize the risk of potential Canadian audits, registration and tax filing requirements and the assessment of tax and, possibly, interest and penalties.  Communications with a lawyer regarding such planning should be privileged. 
  15. Where NRCo is paying remuneration to a non-resident employee performing services in Canada and one or both of the company and employee have not complied with their Canadian income tax obligations, consideration may be given to submitting a voluntary disclosure to the CRA.  Very generally, a voluntary disclosure involves a taxpayer voluntarily disclosing tax errors and omissions to the CRA.  Penalties and the potential for prosecution in respect of the tax errors and omissions will be avoided if a voluntary disclosure is accepted by the CRA.  Partial relief from interest may also be granted if a voluntary disclosure is accepted.