Feigenbaum Law

More Updates on Canadian and American Taxes During COVID-19

Personal Tax Planning
June 12, 2020

A few weeks ago we wrote a blog about some of the ways the Canada Revenue Agency is addressing potential international income tax issues that people and corporations might run into, in light of the issues stemming from the current health crisis. In that blog, we wrote about how the CRA is addressing income tax residency as well as the carrying on of business in Canada, particularly for those who may be stuck in a foreign country due to travel restrictions. This week we want to discuss a few more topics under this umbrella.

Cross-border Employment Income

For people living in communities along the Canadian-United States border, it’s not uncommon for people to live in one of the two countries but work in the other. Canada is permitted to tax salary, wages, and other similar remuneration earned in Canada by a resident of the United States. There are some exceptions to this. Remuneration is not taxable for an American who works in Canada if either the income does not exceed $10,000 USD, or if the person is not present in Canada for more than a total of 183 days within the earning period.

One of the issues that could arise due to COVID-19 is that some US residents who work in Canada but ordinarily do not exceed the 183-day limit may find themselves unable to leave the country due to the border closure. In these situations, where individuals are exercising their employment duties in Canada, solely as a result of the travel restrictions in place, these days will not be counted towards the 183-day limit.

For Canadian residents who perform work for an employer located outside of Canada, employers are required to deduct holdings for Canadian tax purposes, though the amount held back can be reduced according to tax treaties. Due to the closure of the Unites States-Canadian border, Canadians may find themselves performing work for a non-Canadian employer while situated in Canada. In these situations, the CRA has stated that “If a Canadian resident employee of a non-resident entity is forced to perform their employment duties in Canada on an exceptional and temporary basis as a result of the Travel Restrictions and that employee has been issued a letter of authority applicable to the tax year including that period, the letter of authority will continue to apply and the withholding obligations of the non-resident entity will not change in Canada as long as there are no changes to the withholding obligations of the non-resident entity in the other jurisdiction.”

Disposition of Taxable Canadian Property by Non-Residents of Canada

Canadian income tax rules state that a non-resident who sells certain taxable Canadian property, including real property or shares in a Candian corporation, must notify the CRA about the sale before it is sold or within 10 days of the sale. The CRA will provide the vendor and the purchaser with a certificate of compliance (a “Section 116 Certificate”) to prove taxes have been paid. Without the Section 116 Certificate, the purchaser of the property would be required to remit a specified amount of the purchase price to the Receiver General of Canada, from which taxes would be deducted, with remaining amounts credited to the vendor.

During the COVID-19 pandemic, the processing of requests for Section 116 Certificates was temporarily interrupted, and requests are taking longer than normal. In these cases, the purchaser or vendor may request that the CRA provide a comfort letter, advising the parties to retain the funds they have withheld until a review is complete, and as long as the tax is remitted when requested, there will be no penalties or interest on the amount. For non-residents selling, for example, a cottage in Muskoka, it is advisable that they hold back a percentage of the proceeds of the sale until their obligations under s. 116 have been satisfied.

At Feigenbaum Law, our lawyers and accounting professionals are leaders in U.S. and Canadian tax law and have unparalleled knowledge of both tax systems. We offer personal and corporate accounting and financial planning services to clients in the U.S., Canada and around the world. Contact us online to learn more about how we can help or call us at (905) 695-1269 or toll-free at (877) 275-4792.

Tagged: non-resident disposition, section 116 certificate