Under the Canadian Income Tax Act, employers are required to withhold income tax at source from Canadian-source compensation paid to non-resident employees related to services rendered in Canada. The amount of withholding is determined in accordance with Section 102 of the Income Tax Regulations. Income tax treaty between Canada and the country of residence of the nonresident employee providing services in Canada may offer relief from paying tax in Canada. The Canadian employer, however, may only be relieved of the tax withholding obligation when a formal waiver is obtained from the Canada Revenue Agency (CRA).
CRA has provide Form that should be used for an employee who is a resident of United States and is expected to earn a maximum of CAN$10,000. If the non-resident employee is a resident of country other than U.S. and if Canada has entered into a tax treaty with such country, the compensation limit has been set at CAN$5,000. The employee must apply for Social Insurance Number or Income Tax Number in order to claim the waiver; the employer must provide T4 to such employee. There may also be issues relating to social security taxes for the U.S. employees; however, they can be mitigated by taking advantage of the Totalization agreement.
This can be a good news for U.S. employees travelling infrequently and earning income in Canada.