Canada: Recent CRA practices deny Regulation 102 waiver requests

Recent Canada Revenue Agency (CRA) practices have made it difficult for some non-resident employees working in Canada to obtain so-called CRA waiver approval under Regulation 102. A waiver is sought so that the employer does not have to withhold and remit applicable payroll taxes from these employees.

The CRA has acknowledged denying Regulation 102 waiver applications, in respect of an employee’s Canadian workdays, if there is a possibility that the foreign employer has a permanent establishment (PE) in Canada. In addition, when a Regulation 105 waiver is denied under the ‘days threshold’ test, any Regulation 102 waiver applications related to that project are likely to be denied too. The CRA has indicated that further guidance may be released late September 2013 on these matters.

As a result, applicants should be proactive with respect to pending waiver requests. They should be aware that if no waiver is obtained, the tax withheld may still be refundable after the employee files an income tax return. However, this may result in unnecessary time and administrative costs.