Back Taxes: Unfiled payroll remittances

Do You Hire Non-Resident Employees?

In the course of business, companies hire employees to help perform various functions. Typically, employees in Canadian businesses reside in Canada. However, there is no geographical restriction on whom a company may employ; in other words, Canadian companies are allowed to hire, as employees, individuals who do not even reside in Canada. This allows for companies to hire the best possible workers, even if they are non-residents. However, both the employer and employee face tax implications that arise in this situation. They are set out in Regulation 102 of the Income Tax Act.

What is Regulation 102?

Regulation 102 is a withholding tax on non-resident employee earnings (e.g. salary, wages, commissions, bonuses, etc.). Regulation 102 ensures that payments to non-residents of Canada who provide employment services in Canada are subject to the same withholding, remitting and reporting obligations as those of Canadian-resident employees. As such, Regulation 102 requires that employers who pay others any remuneration in respect of an office or employment in Canada are required to withhold, remit and report these amounts to the Canada Revenue Agency. This obligation also extends to non-residents of Canada employing either resident or non-resident employees for services performed in Canada. Employers are required to withhold and remit withholding taxes for each of their employees unless a waiver of withholding tax has been issued. Also, employers are required to withhold and remit Canada Pension Plan contributions (CPP) and Employment Insurance Premiums (EI) for each of their employees unless otherwise exempted. An exemption of CPP may be available based on a reciprocal agreement on social security between Canada and the employee's home country. An exemption for Employment Insurance withholding may be available if the unemployment laws of the employee's home country require payment of premiums on the same employment income. Other exemptions may also apply. Employers who fail to withhold and remit these required amounts without authorization from the CRA may be held liable for the whole amount with interest and penalties.

While amounts are withheld by the employer from the non-resident employee, these amounts may be recouped. Non-resident employees must file a Canadian income tax return to calculate their tax liability to determine if they are entitled to a refund. T1 Individual Income Tax returns must be filed by April 30th of the following calendar year.

How Regulation 102 can cause back tax problems

If the withholding requirements of Regulation 102 are not met, the employer is responsible for any monies not collected and it becomes a back tax issue for the employer. Tax Doctors Canada has highly qualified accountants in the area of international tax and non-resident tax services. Failure to comply with with your non-resident employee tax obligations can be very costly.Tax Doctors Canada can efficiently and cost effectively ensure that you comply with all your obligations under Regulation 102 in order to avoid any possible back tax complications

Do not hesitate any longer, call toll free at 1 855 TAX DOCS (855 829 3627) or use our convenient contact web form on this page for a free no obligation consultation regarding all your back tax filing needs. The professional accountants at Tax Doctors Canada can negotiate a settlement for you with the tax department and possibly save you interest, penalties and prosecution. There are Tax Doctors locations in Mississauga, Toronto and Markham to serve you.

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