Tax Insights: Alert for multinational companies: Payroll and immigration compliance

Issue 2014-22

Cross-border employee travel into Canada raises various Canadian tax withholding and immigration compliance requirements. Multinational companies should consider whether they have the processes and controls in place to manage these requirements and the associated risks.

This is especially important because many multinational companies have become more globally integrated, increasing the interaction between Canada and a group’s global network. As a result, more individuals – including key executives and project-based employees – are entering Canada to perform a variety of functions.

Companies that have employees who perform employment duties in Canada should be aware of Canadian payroll compliance requirements, even if the employees are ultimately exempt from Canadian taxation under an income tax treaty.

Section 102 of the Income Tax Regulations (Reg. 102) requires every employer (whether resident or non-resident of Canada) that pays remuneration to an employee, in respect of employment duties rendered physically in Canada, to withhold Canadian taxes on the remuneration.

There are no de minimis exceptions and there are no exceptions pursuant to a tax treaty (even though the treaty may ultimately exempt the remuneration from Canadian personal taxation).

If remuneration is exempt under a treaty, any withholding should be refundable to the employee on the filing and processing of a Canadian personal tax return.

The Reg. 102 withholding obligation could apply, for example, to employees who travel to Canada:

  • to participate in operational projects
  • to meet with clients
  • to participate in internal projects
  • to attend board meetings, or
  • for same-day or short-term business meetings

The Canada Revenue Agency's (CRA’s) audit activity relating to Reg. 102 has increased significantly in recent years