How Does the Canada Emergency Wage Subsidy Apply to Non-Resident Employers?
The much-welcomed Canada Emergency Wage Subsidy (CEWS)
, enacted on April 11, 2020 (Bill C-14
may apply in unexpected ways to non-resident entities that send their
non-resident employees to Canada. In general, to qualify for the CEWS,
an employer must:
- be an eligible entity;
- experience a decline in qualifying revenue;
- employ an eligible employee;
- pay that person eligible remuneration in a qualifying period; and
- have a payroll account on March 15, 2020.
Consider the case of a US-resident corporation, NR Co, that provides
services in Canada. It does not have a permanent establishment in Canada
under the provisions of article V of the Canada-US tax treaty, in
particular the so-called deemed services provision of article V(9). It
does have a payroll account in Canada, which it maintains in respect of
its US-resident employees who work in Canada on an intermittent basis.
These employees are allowed to travel to Canada during the COVID-19
pandemic under the essential services exception to the border
restrictions. Assume that NR Co had the requisite decline in qualifying
revenue for the relevant periods from March 15 to August 29, 2020.
Assume that A is an employee of NR Co, is a tax resident of the United
States, and works in Canada for three days during the period
March 15-April 11, 2020 and in the United States for the remainder of
the period. A is paid a salary by NR Co for the entire period. Is NR Co
entitled to a CEWS benefit in respect of all of the wages paid to A?
NR Co is an eligible entity because it is a corporation and is not
exempt from tax. In CRA document no. 2020-084779 (May 8, 2020), the CRA
says that the words "exempt from tax" in paragraph (a) of the definition
of an "eligible entity" in subsection 125.7(1) are meant to exclude,
generally, corporations described under subsection 149(1). Therefore, a
non-resident corporation that is not subject to Canadian income tax
under the relevant tax treaty can qualify as an eligible entity.
To qualify for the CEWS, NR Co must pay "eligible remuneration" as
defined in subsection 125.7(1). The salary paid to A in respect of the
services performed in Canada will qualify only if NR Co has not applied
for a non-resident employer certification pursuant to
paragraph 153(7)(a). Eligible remuneration is defined as amounts
described in paragraph 153(1)(a) or (g). These paragraphs generally
include salary, wages, or other remuneration paid to an employee.
However, amounts paid at any time by an employer to an employee at a
time that the employer is a "qualifying non-resident employer" and the
employee is a "qualifying non-resident employee" are excluded. These
amounts are not subject to the employer withholding requirements of
section 153 and regulation 102. If NR Co chooses not to file an
application pursuant to paragraph 153(7)(a) to be classified as a
qualifying non-resident employer, or is not eligible to be considered a
qualifying non-resident employer for some other reason (for example,
failing to comply with the requirements of the certified non-resident
employer program), it would be liable to withhold, but it would be
eligible for the CEWS.
Also, pursuant to the definition of eligible remuneration in
subsection 125.7(1) and the references to paragraphs 153(1)(a) and (g)
in the definition, eligible remuneration is not specifically limited to
the salaries and wages paid for the services performed in Canada
However, note that under the salary withholding requirements applicable
to non-resident employers that do not qualify under the certified
non-resident employer program, regulation 104 generally limits the
withholding to "remuneration reasonably attributable to the duties of
any office or employment performed or to be performed in Canada by [a]
It is not clear at this time if a proper interpretation of the CEWS
legislation would require the CRA to apply a similar approach to the
calculation of eligible remuneration for the purposes of the CEWS. If it
does not, a non-resident employer may claim the subsidy for all of the
wages paid to a non-resident employee during the qualifying period
regardless of the number of days actually spent working in Canada.
Our example illustrates this anomaly. A performed services in Canada
from March 15-17, 2020 and was paid for the entire period from March 15
to April 11, 2020. Read literally, the definition of "eligible employee"
requires only that an employee be employed in Canada by an eligible
entity in the qualifying period and receive remuneration in respect of
15 or more days from the eligible entity during the qualifying period.
In the given fact pattern, could NR Co claim a subsidy for the full
amount of A's salary during the qualifying period (March 15-April 11,
2020) even though the eligible employee worked in Canada for only three
It is unclear whether the legislation should be applied in this way, but
such a conclusion seems possible on a literal reading of the
provisions. It does seem anomalous to us that Parliament would want to
provide a subsidy to a non-resident employer in respect of wages paid
for services rendered outside Canada. To date we are unaware of how the
CRA might administer the provisions in circumstances such as those
Alex Ghani, Stan Shadrin, and Boris Volfovsky
CPA Solutions LLP, Toronto
COVID-19 and Canadian Tax
A special joint issue of Canadian Tax Focus and Tax for the Owner-Manager
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