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CRA offers additional relief for COVID-19 travel restrictions

CRA offers additional relief for travel restrictions

The CRA has updated its international income tax guidance

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In new guidance, the CRA clarifies its views on certain cross-border tax issues caused by travel restrictions put in place as a result of COVID-19. Specifically, the CRA confirms that it will generally consider the federal government's recommendation to Canadians to return to Canada as a "Travel Restriction". In addition, the CRA says it will provide relief for certain non-resident employers who would be subject to Canadian withholding, remitting, and reporting obligations due to non-resident employees working remotely in Canada because of the travel restrictions. The CRA updated its online guidance to reflect these changes on October 15, 2020.

Background

The CRA issued guidance to address cross-border income tax issues caused by COVID-19 related travel restrictions in May 2020. In this guidance, the CRA generally clarifies that prolonged stays in Canada that solely result from travel restrictions will not necessarily affect the tax residency or permanent establishment of a non-resident entity. The CRA also advises that such travel restrictions may not affect the tax residency of a non-resident individual, or the ability of a cross-border employee to qualify for treaty benefits on employment income. The guidance also includes additional information for requesting certain waivers, notifications for certificates of compliance and non-resident employer certification.

The guidance applies to September 30, 2020, and taxpayers are advised to contact the CRA if their situation continues past this date.

Government recommendation to return to Canada

The CRA's guidance generally addresses issues caused by individuals' restricted ability to travel due to COVID-19. The CRA clarifies that it will generally view the Canadian government's recommendation to Canadians to return to Canada as a "travel restriction" for purposes of determining a taxpayer's eligibility for relief under its guidance. The CRA notes that this would include a scenario where an individual would have been permitted under the laws of their country of residence to remain in (or return to) that country. As a result, the CRA's guidance, including for tax residency and treaty benefits, should apply to taxpayers who face certain cross-border tax issues due to the government's recommendation to return to Canada.

Canadian withholding, remitting, and reporting obligations

The CRA has added a new section to its guidance to provide relief for certain non-resident employers (Section III.-D). In this section, the CRA states that it may provide relief where a non-resident employee of a non-resident employer travelled to Canada for personal reasons and was unable to return to their country of residence due to the travel restrictions. Specifically, the CRA clarifies that it will not assess or penalize a non-resident employer for failing to withhold the required Canadian payroll deductions on remuneration paid to a non-resident employee performing duties of employment remotely in Canada in certain situations.


Generally, a non-resident employer would be subject to Canadian withholding, remitting, and reporting obligations, and potentially interest and penalties, where they do not meet these obligations, unless the non-resident employee and non-resident employer take steps to obtain certain relief before the payment is made. Under the usual relief procedures, a non-resident employee may be able to apply for and receive a waiver of the tax or the non-resident employer may be able to apply for and receive certification as a "qualifying non-resident employer" and obtain relief from withholding and remittance obligations on payments made to "qualifying non-resident employees".


Because of the exceptional circumstances caused by travel restrictions, which may have resulted in affected non-resident employers not having obtained available relief from Canadian withholdings prior to any payment, the CRA advises that it will not assess or penalize a non-resident employer where the non-resident employer and the non-resident employee can reasonably demonstrate that:

  • The employee is resident in a country with which Canada has a comprehensive tax treaty
  • The employee is not resident in Canada for tax purposes in accordance with the relevant treaty
  • The employee's remuneration would otherwise be exempt from taxation in Canada in accordance with the relevant treaty
  • The employee regularly and customarily performs their duties of employment outside of Canada and has not previously performed duties of employment in Canada, as a non-resident of Canada, for any employer
  • There is no employer-employee relationship between the employee and any employer in Canada

There has been no significant change to:

  • The employee's duties of employment (other than working remotely) while working in Canada
  • The employer-employee relationship that existed at the time the employee travelled to Canada, and
  • The employee travelled to Canada due to the COVID-19 crisis or for reasons not related to their employment, and was unable to return to their jurisdiction of residence solely due to the travel restrictions.

The CRA notes that this position is not subject to the guidance's September 30, 2020 expiry date, and that the CRA will respect this position for the period beginning on the day the employee commenced exercising their employment duties in Canada, and ending on the earliest of:

  • The day the employee returned or was able to return to their jurisdiction of residence
  • The day specified on a Regulation 102 waiver relieving the employee from the relevant Canadian withholdings
  • The day the employer was certified as a qualifying non-resident employer and the employee was also a qualifying non-resident employee, or
  • December 31, 2020.

For more information, contact your KPMG advisor.

Information is current to October 20, 2020. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500

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