How can a NZ company be treated as non-taxresident of Canada

[clarksonmitchell]

I am the sole sharelholder of the NZ company that employs me. It has three directors of which I am one. The other two directors
live in England and Malaysia respectively. Directors meetings are held each year either in NZ or Malaysia. Under NZ
law directors are responsible for the company's actions not the shareholders. If I am a non-resident of Canada for tax purposes does it
follow that my NZ company will be treated as a non-resident company in Canada if I am sent there to work? Is it easiest just to claim
residence in NZ under the DTA between NZ and Canada when it files the non-resident company tax return each year?

If I am not successful in retaining my non-resident tax status in canada will it cause the NZ company be treated as resident
in Canada for tax purposes? How can this be avoided?

What steps does the NZ company have to take in order to be treated as a non-resident company for tax purposes in Canada
under the DTA between Canada and NZ?

Many thanks for any assistance

Clarkson Mitchell

[Michael I. Atlas, CA]

Under common law rules, a corporation is generally resident where the Directors meet, although that is a generalization.

If the Directors' meeting are held outside of Canada, likely would be non-resident, unless there is something to suggest that the other two are really not acting as Directors and that you are really running the show from Canada.

The safest thing would be, if you become resident in Canada, to resign as a Director.

The DTA will only be applicable if the company is resident in both NZ and Canada under domestic tax laws-see Article 4(3)-in that case, it is left to the tax authorities to decide.

Note that even if your company is not resident in Canada it may have tax and filing obligations. The fact that you will be working here may mean that the very least that it is carrying on business in Canada and must file a corporate tax return. In addition, your presence here may constitute a PE in Canada, so that even if resident in NZ, the DTA will not allow you to be exempt from Canadian taxation applicable to business in Canada.

If you want to contact me offline to provide more detailed advice, feel free to do so.

[clarksonmitchell]

If our company sends an employee to work in Canada it will become liable for Canadian witholding tax payments if
our employee works there for more than 183 days in any 12 month period under Article 14 of the double tax agreement between
Canada and NZ. However paragraph 2 of Article 21 "Elimination of double taxation" allows for relief from double taxation
for any tax paid in Canada whether directly or by deduction (that is, witholding tax).

Since he/she will be paid by the NZ company NZ PAYE has to be witheld so he/she will have tax witheld twice. Is it possible to claim a tax
credit against Canadian witholding taxes under local Canadian tax laws for the NZ PAYE that is witheld in NZ?

If our company sends an employee to work in the United States, it will become liable for US witholding tax payments if the
our employee works there for more than 183 days in any 12 month period under Article 15 of the US-NZ DTA. Article 22
paragraph 2 of the DTA provides for relief in NZ from double taxation for any tax paid in the US whether directly or by
deduction (that is, witholding tax). Because the employee is paid by the NZ company it has to withold NZ PAYE. How is it possible
to claim a tax credit against US witholding taxes under local IRS rules for the NZ PAYE that is witheld in NZ?

Thank you again

Clarkson Mitchell

[Michael I. Atlas, CA]

Firstly, you might want to look into whether you really need to withhold NZ tax from the employees pay, given that the work would be done outside of NZ.

In any event, the way that double tax would be avoided would be the opposite of what you are suggesting. Namely, NZ should give a foreign tax credit for the Canadian tax payable.

Canada would never give a foreign tax credit for the NZ tax, because a foreign tax credit only applies to foreign source income. In this case, the "source" of the income would be considered Canadian, since the employment duties are performed in Canada, so there would be no basis for claiming a foreign tax credit in Canada.

On the other hand, from the NZ perspective, it should be viewed as foreign source income, and assuming the salary is taxed at all in NZ, they should allow a foreign tax credit for Canadian tax.

The reporting and claiming would be done by the employee on his/her tax return.

The same would be true in the situation you describe regarding the US. They are not going to give a foreign tax credit for NZ tax on US source income.

The relief is foreign tax credit claim in the country of residence by the employee.

[clarksonmitchell]

Hi,

We were told by the NZ Inland Revenue Department that if the employee is paid directly by the NZ parent company anywhere in the world then it must withold NZ PAYE witholding tax in NZ. But since there will be witholding tax that is payable in Canada or the USA then a special witholding tax code has to be applied for that will serve to reduce the amount of NZ witholding tax or else eliminate it altogether.

Since the DTA between NZ and Canada and NZ and USA suggest that income tax is payable only if the employee works there for more than 183 days,
can Canadian or US witholding tax be avoided if the employee works in Canada or the US for not more than 183 days? Or if it turns out that the employee has to work there for more than 183 days will income tax and therefore witholding tax be payable in Canada or the States only for the period of time that is in excess of 6 months? For example if the employee was originally envisioned to work there for 6 months but actually ends up working there for 7 months, will income tax and witholding tax be payable in Canada or the States only for the 7th month?

Thanks again

Clarkson Mitchell

[Michael I. Atlas, CA]

If the 183 day threshold in the treaty is exceeded, then all of the emplyment income is subject to tax in Canada that relates to emplyment in Canada.

I believe that the same would be true in the U.S.-either you have the treaty exclusion or you do not-it is all or nothing.

As far as the withholding situation in Canada is concerned (I will not comment on the US) I honestly do not know the CRA's position, and I cannot take the time now to search it out. However, I think that the usual practice with foreign employers in that type of situation (rightly or wrongly) is that they do not withhold Canadian tax.

[clarksonmitchell]

Hello,

The Canadian company we are doing business with may ask us to give a Canadian business number from the CRA or a GST/HST number as a precondition for doing business with us in Canada. If that happens is it wise to not pay witholding tax in Canada if our NZ company has to register with the CRA for a GST/HST number and a business number BN? In other words if the CRA knows about us will we not eventually be caught out and charged penalties or interest if we do not make witholding tax payments whatever the DTA between Canada and NZ says?

Thanks again

Clarkson Mitchell

[Michael I. Atlas, CA]

Not necessarily.

I suggest that if you have a concern along those lines, you should contact the payroll tax people at the CRA and see what their procedure is in this case. In the worst case scenario, you will have to withhold, and then the employee will file a return in Canada to recover the tax.