RC473: certified non resident employers skip withholding for 2 years

Who counts as a qualifying employer and a qualifying employee?

Subparagraph 153(1)(a)(ii) of the Income Tax Act takes pay out of withholding when a qualifying non resident employer pays a qualifying non resident employee, and subsection 153(6) defines both terms laws-lois.justice.gc.ca. Both sides must qualify at the time of each payment, so the test runs pay by pay, not once a year.

The two clocks count differently. Days worked are days the employee is physically in Canada and paid for that time, generally leaving out weekends, days off and holidays. Days of presence are any day in Canada, even part of a day canada.ca. Passing either clock is enough.

The treaty exemption is a separate test the employer has to check treaty by treaty. Under the Canada US treaty, Article XV(2) exempts a US resident's pay for work in Canada if it is $10,000 Canadian or less in the year, or if the employee is present no more than 183 days in any 12 month period starting or ending in the fiscal year and the pay is not paid by a Canadian resident or borne by a permanent establishment in Canada canada.ca. The treaty countries list shows which countries have a treaty at all.

Which of these four engineers can be paid without withholding?

Worked example. A US engineering firm with no permanent establishment in Canada is certified from January 2026. It pays its engineers from the US and sends four of them to a client site in Ontario during 2026. Each one is a US resident and gave the firm a passport copy.

Engineer B is the one payroll gets wrong: 50 work days blows the 45 day clock, but 70 days of presence keeps B under 90, and either clock qualifies laws-lois.justice.gc.ca. Engineer D is still treaty exempt (100 days is under 183, and a US resident pays D), but certification no longer covers D, so the firm withholds unless D gets a waiver. Under Regulation 102 a non resident employee gets no personal credits in the withholding calculation, so the deduction runs higher than for a Canadian resident on the same pay laws-lois.justice.gc.ca.

Engineer C turns on Regulation 200(1.1): no information return is required for a payment exempt under 153(1)(a)(ii) if, after reasonable inquiry, the employer has no reason to believe the employee's total taxable income earned in Canada for the calendar year, treaty exempt amounts included, is more than $10,000 laws-lois.justice.gc.ca. A and B are over $10,000, so their pay goes on T4 slips even though no tax was withheld.

How do you apply and what does the employer promise the CRA?

Complete Form RC473, the CRA's application for non resident employer certification canada.ca, so the CRA receives it at least 30 days before a qualifying employee starts working in Canada. If the employer also needs a Regulation 105 waiver for the fee it charges a Canadian client, send both applications together canada.ca.

Submit it through Submit Documents in My Account, Represent a Client or My Business Account, by fax to 1-833-329-1160 (from Canada and the US) or 418-566-0323 (elsewhere), or by mail to the Pacific International Waivers Centre of Expertise at PO Box 470 STN MAIN, Surrey BC V3T 5B7 canada.ca. The CRA publishes no service standard for RC473.

Those conditions come straight from the CRA's certification page canada.ca. Certification is valid for up to two calendar years canada.ca, and the Minister can certify for a specified period and revoke it when no longer satisfied that the conditions are met laws-lois.justice.gc.ca. Until the approval letter arrives, payroll keeps withholding. See business number registration, the NR301 page and the non resident corporation T2.

What happens when an employee stops qualifying partway through the year?

Notify the CRA's Vancouver Tax Services Office, International Waivers, right away with full details. If the employee is still treaty exempt, file Form R102-R for that employee; if not, start withholding immediately. The CRA says retroactive relief may be available when the employer monitored prudently and told the CRA promptly, and failing to notify can lead to tax, interest, penalties and revocation canada.ca.

R102-R is the employee's own route: a treaty resident employee applies for a Regulation 102 waiver when a treaty will exempt the pay canada.ca. It must be submitted 30 days before the employment services start or the first payment, and it takes effect only on the date the CRA approves it, so pay before approval still carries withholding canada.ca.

The penalty shield is subsection 227(8.6): the 10% failure to withhold penalty in 227(8) does not apply to a qualifying non resident employer that, after reasonable inquiry, had no reason to believe at the time of payment that the employee wasn't a qualifying non resident employee laws-lois.justice.gc.ca. Without that, a second failure made knowingly or with gross negligence costs 20% laws-lois.justice.gc.ca. The day log is the reasonable inquiry. If the certification is revoked because conditions weren't met or the application facts were false, the employer can owe the withholdings and penalties for the whole certified period canada.ca.

What does certification leave untouched?

CPP and EI. Certification removes income tax withholding only. CPP may be exempt under a reciprocal social security agreement, and EI may be exempt when the home country requires premiums on the same income, but without CRA authorization the employer can be liable for the unremitted amounts plus interest and penalties canada.ca.

The Canadian client's withholding. When the non resident employer bills a Canadian client for the engineers' work, the client still withholds 15% of the fee under Regulation 105 unless the employer holds a waiver; see Regulation 105 withholding. Payments to non resident investors fall under Part XIII instead, covered on the Canada US treaty withholding page.

Past years. The CRA doesn't weigh compliance history on an initial application, but certification doesn't cancel earlier liabilities, and it points employers with prior deficiencies to the Voluntary Disclosures Program canada.ca. See the voluntary disclosure page.

Quebec. Certification is a federal rule under section 153, and the CRA's certification page says nothing about Quebec source deductions, so confirm the Revenu Québec side separately for work done in Quebec.