Taxation of international executives
Are there special residency considerations for short-term assignments?
An individual is deemed to be a resident of Canada if he stays in Canada for 183 days or more during a tax year, and is not otherwise a resident of Canada (also referred to as the “sojourning” or “183-day” rule).
A deemed resident of Canada may be able to break his residency to Canada under the terms of a tax treaty if he has stronger residential ties to that other country.
If an individual is considered a resident of a country with which Canada has a tax treaty, he/she may be considered a deemed non-resident for taxation purposes.
Are there special payroll considerations for short-term assignments?1
Payroll withholdings are to be deducted according to the withholding requirements for regular employees regardless of whether the individual is considered a resident or non-resident for tax purposes in Canada.
Non-residents need to declare their status when completing Form TD1 to determine the correct amount of payroll withholdings. If less than 90 percent of the non-resident’s worldwide income for the relevant calendar year will be included when determining taxable income earned in Canada, the non-resident is not entitled to certain tax credits allowed for residents.
What income will be taxed during short-term assignments?
If the individual on a short-term assignment is considered a deemed resident for taxation purposes, the individual:
If the individual is considered to be a non-resident for taxation purposes, then only income earned from Canadian sources will be subject to Canadian taxes.
An employee who works at a special work site may have certain benefits that can be excluded from his/her income. These benefits include:
The term "temporary" refers to the duration of duties performed by the individual employee rather than the project as a whole. The length an assignment may last and still qualify for the special work site exclusion is not defined in the Income Tax Act. However, aAs a general rule, duties will be considered by the CRA to be of a temporary nature if it reasonably can be expected, at the assignment’s outset, that they will not provide continuous employment beyond two-three years.
Are there any additional considerations that should be considered before initiating a short-term assignment in Canada?
Employees should obtain proper work permits and immigration clearance before working in Canada.
1CRA - Non-resident workers
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