CRA is updating COVID-19 reduction pointers and journey restrictions

On April 1, 2021, the Canada Revenue Agency (CRA) updated its guidelines and administrative facilitations regarding the impact of COVID-19 travel restrictions on residence and residence regulations.

Effects for the individual


An individual’s tax residence is determined based on an actual assessment of their relationship with Canada. If an individual is physically present in Canada for 183 days or more during a tax year, the individual is deemed to be a Canadian resident for the year. If normally non-residents were in Canada at a time when travel restrictions were imposed, and those restrictions prevented them from returning to their jurisdiction of residence, the rating agency announced that they would not consider Canadian residents if the reason for their continued presence was solely due to travel restrictions. Additionally, days of presence in Canada would not count towards the 183 day limit due to travel restrictions. Originally, the relief should apply for the period from March 16, 2020 to September 30, 2020. The rating agency has extended the relief period to the earlier lifting of travel restrictions and December 31, 2021. It is important to note a person can still be considered a Canadian resident when there are other indicators of residence such as: B. permanent home in Canada or participation in government programs for Canadian residents.

Cross-border employment

Employees not based in Canada

The CRA has given relief to employees who are normally based in the United States but who work from Canada. Time spent in Canada due to travel restrictions does not count towards the 183-day test for employment in Canada under the Canada-US tax treaty. The rating agency announced that this relief will extend until December 30, 2020. After this time, the 183-day test according to the contract applies.

When an employee works in Canada, the employer is subject to Canadian withholding tax and remittance obligations, unless the rating agency waives them. The rating agency had previously confirmed that it would not judge or punish an employer for failing to detain or refer a non-Canadian employee if the conditions below are met. The rating agency has extended this relief until December 30, 2020 and released the employer from his obligation to issue a T4 receipt for the 2020 tax year. provided the employer records the days the employee worked due to travel restrictions while in Canada and the income equivalent to those days. The conditions are:

  1. The non-resident worker is resident in a country with which Canada has a comprehensive tax treaty (the Agreement).
  2. The non-resident worker is not resident in Canada for tax purposes under the applicable contract.
  3. The remuneration received by the non-resident worker for performing his or her employment duties in Canada would otherwise be tax-exempt in Canada under the applicable contract.
  4. The non-resident regularly and customarily carries out their employment duties outside of Canada and has not previously performed any employment duties for an employer as a non-resident in Canada.
  5. There is no employer-employee relationship between the non-resident and any employer in Canada.
  6. No material changes have been made to: the non-resident worker’s employment obligations (other than remote work) while working in Canada; or the employer-employee relationship that existed between the non-resident employer and the non-resident when the non-resident traveled to Canada; and
  7. The non-resident worker traveled to Canada due to the COVID-19 crisis or for reasons unrelated to his or her employment and was unable to return to his or her residence jurisdiction due to COVID-19 travel restrictions alone.

Canada-based employees who work in the United States

In the event that a Canadian resident is working in a foreign jurisdiction for a non-resident employer, the credit rating agency may issue a “letter of authority” authorizing the non-Canadian employer to reduce Canadian deductions at source, to take into account the foreign taxes payable. This would generally be offset against the employee’s Canadian tax liability through a foreign tax credit. If the Canadian resident employee is forced to work in Canada instead of at the employer’s overseas office due to travel restrictions, the rating agency previously announced that the power of attorney will remain valid for the period between March 16, 2020 and September. 30, 2020, provided that the withholding tax obligations in the foreign jurisdiction do not change.

Due to the application of the Canada-US tax treaty, Canadian residents who normally work for their US employer in the US may be subject to more Canadian taxes and less US taxes on labor income. To remedy this, the rating agency has announced two options:

  1. For ease of reporting, the rating agency will administratively accept that US employer’s earnings paid to Canadian residents who are forced to work remotely in Canada due to travel restrictions will be drawn in the US for the 2020 tax year. With this method, employees would submit as in previous years. Employees must keep a record of US taxes paid and make an adjustment in the event that they receive a US tax refund.
  2. Alternatively, employees can opt to file in 2020 based on the rules for obtaining tax treaties (which would raise the income in Canada). Employees whose tax withholding was adjusted in 2020 to reflect contract procurement rules must submit on this basis. The credit rating agency has provided additional guidance on the treatment and availability of foreign tax credits (including approving a credit that is non-refundable from US state taxes), social security transfers, and US retirement contributions. Employees must apply for all applicable US tax refunds and pay the applicable Canadian tax. They may be subject to installment payment obligations in 2021. In such cases, interest and late payment penalties are waived in certain circumstances.

Further guidelines will be published for 2021. If employees work permanently in Canada, the rating agency determines that the income-generating rules in the tax treaty would apply.

The credit rating agency also gave several examples of how these administrative concessions apply to various cross-border working arrangements.

Impact on Business


When directors of a company are physically present in Canada and cannot travel to another jurisdiction to attend meetings, there is a possibility that the company may be considered resident in Canada. If the company is also located in a jurisdiction with which Canada has a tax treaty, the problem is often addressed in the tax treaty itself. If the tax treaty does not address the issue (by determining the company’s residence based on its “effective place of administration”), the rating agency will not consider the company to be Canada resident simply because the director attends a board meeting of Canada solely due to travel restrictions . If Canada does not have a tax treaty with the other jurisdiction, the decision will be made on a case-by-case basis. The rating agency applies this approach to overseas corporations classified as corporations under Canadian income tax law, as well as commercial trusts and the calculation of the surplus of a foreign subsidiary of a Canadian corporation. This administrative discharge was not extended beyond September 30, 2020.

Permanent establishment

A permanent establishment can arise when an employee or representative performs certain tasks in Canada on behalf of the foreigner. The rating agency granted administrative relief in the period from March 16, 2020 to September 30, 2020. Although the rating agency has not extended this relief, it has clarified its position in circumstances where a tax treaty applies. The rating agency would generally not consider a home office or other work area to be a permanent place of business in Canada unless the location appears to be permanent and the location is “available” to the employer. An individual working from their place of residence or short term residence in Canada while the travel restrictions are in place would generally not be sufficient to establish a permanent establishment. The rating agency notes that once the travel restrictions are lifted, the position may change if the employee continues to work remotely and the location is available to the employer.

A permanent establishment can also arise when an employee has the right to enter into contracts on behalf of the employer and usually exercises that right in Canada. The rating agency confirmed that this requirement would not be met if the person entered into contracts in Canada solely on the basis of travel restrictions.