CRA issues guidance on tax issues raised by COVID-19 crisis & travel restrictions

24 minute read
09 June 2020

Updated July 6, 2020 -  Note: The CRA has announced that the guidance described below will apply from March 16 until August 31, 2020 (previously it expired June 30, 2020), at which time the Agency may extend them if necessary, or rescind them if no longer required.

As a consequence of COVID-19, governments and businesses around the world have introduced travel restrictions to protect their citizens and employees. Where individuals are unable to return to their home country or are unable to work from their normal work locations because of these travel restrictions, this creates numerous cross-border tax issues, many unintended. The Canada Revenue Agency ("CRA") recently issued administrative guidelines on some of the issues this to ensure taxpayers, mainly employers and employees, are not faced with additional Canadian tax burdens as a consequence of these temporary travel restrictions. These guidelines reflect some of the recommendations issued by the Organization for Economic Cooperation and Development on implications of the COVID-19 crisis on cross-border workers and other related cross-border matters. The CRA administrative relief is summarized below and will apply from March 16 until August 31, 2020, unless extended by CRA.

Although CRA's administrative guidelines are intended to assist taxpayers during this time of crisis, and are similar to the temporary relief recently offered by other tax administrations around the world, including the United-States and United-Kingdom, taxpayers must still exercise caution. For example, much of CRA's temporary relief applies only where the sole reason for an individual's extended presence in Canada is due to COVID-19 travel restrictions, which may not be a clear cut issue for some. Also, issues involving tax residence status, carrying on business in Canada or the presence of a permanent establishment are question of fact, dependent on several factors, the degree of physical presence in Canada being only one factor.

Tax Residency



Under the Canadian tax system, individuals, corporations and trusts that are resident in Canada are liable for tax on their world-wide income. At common law, an individual's residence is a common-law factual determination based on the individual's residential ties with Canada. In addition to the common law test, an individual who sojourns (e.g., is physically present) in Canada for a period of, or periods the total of which is, 183 days or more in a calendar year will be deemed to be resident in Canada throughout the year. Individuals with prolonged visits in Canada, as a consequence of COVID-19 travel restrictions prohibiting them from returning to their home country, could begin to have Canadian tax residence issues under both of these residence tests. Likewise, a Canadian who is ordinarily working abroad but has returned to Canada due to the COVID-19 crisis may also be considered to have Canadian tax residency.

CRA Guidance

Under the temporary guidelines , CRA has stated that where an individual who has remained in Canada solely because of travel restrictions, that factor alone will not cause the CRA to consider the common-law factual test of residence to be met. Furthermore, CRA will not count the days during which an individual is present in Canada and is unable to return to their country of residence towards the 183 day deemed residence test. However, if an individual's extended stay in Canada can reasonably be attributed to a combination of factors beyond travel restrictions, such as where the individual does not return to their home country as soon as the travel restrictions are lifted, these guidelines may not apply.


Individuals who do not fit cleanly within the CRA temporary guidelines should seek tax advice regarding their Canadian residence status, particularly before voluntarily filing a Canadian tax return or a Form NR74 Determination of Residency Status (entering Canada). In most cases, particularly as a consequence of the dual resident tie-breaker rules in Canada's tax treaties, these individuals will not be considered a tax resident of Canada regardless of whether they fall within the CRA temporary guidelines. As CRA has a tendency to err on the side of caution when making its Canadian residence determinations, the filing of Form NR74 could trigger an unnecessary tax dispute with the CRA.



Corporations that are incorporated in Canada are generally deemed to be residents of Canada. However, at common law, corporations that have been established under foreign law could also be considered resident in Canada if their "central management and control" is located in Canada. One of the key factors typically considered in determining the location of a corporation's central management and control is the jurisdiction in which the meetings of the board of directors take place.

CRA Guidance

Canadian residents who are directors of a foreign corporation who are unable to attend board of director meetings in the foreign country due to travel restrictions, and instead participate in those meetings from Canada (e.g. by zoom video calls), could cause the foreign corporation to be Canadian resident. Under the temporary CRA guidance, where the corporation is a resident of a country that has a tax treaty with Canada, CRA will not consider the director's participation in those board of director meetings from Canada to cause the company to be a resident of Canada. This concession also extends to other entities – such as limited liability companies – established in foreign jurisdictions that are considered corporations under Canadian income tax law. The CRA may also consider adopting a similar approach in determining the residence of a commercial trust.


It should be noted, however, that the guidelines do not extend to situations where the senior executives carry on their activities in Canada, due to COVID-19, which could be considered another indicia of management and control in Canada.

Corporations that are formed in one country but have their central management and control in Canada are often dual residents. Similar to the comments above on individuals, the dual resident tie-breaker rules in Canada's tax treaties may settle the tie in favor of the other country. Where the tie-breaker rules are settled in favor of Canada's treaty partner, these corporations will not be considered tax residents of Canada even where they do not fall within the CRA guidelines. For example, under the Canada-U.S. Tax Convention ("Canada-U.S. Treaty"), the tie-breaker goes to the place of incorporation. However, unlike treaty tie-breaker rules pertaining to individuals, the corporate tie-breaker rules can vary significantly per treaty. Although the CRA guidelines are welcome news, it is only intended to provide relief in highly restricted circumstances.

If foreign companies have directors participating in board of director meetings from Canada and such participation is not solely as a consequence of travel restrictions, they should be seeking Canadian tax advice regarding the impact of such participation where the treaty tie-breaker rule is not based on place of incorporation or the state in which the corporation is a national.

It is not a surprise that CRA did not extend this administrative policy to corporations that are not resident in a treaty country. If Canada does not have a tax treaty with the country, it is highly possible the country is a tax haven or a low taxing jurisdiction and CRA would want to fully protect its ability to challenge an entity formed in that country as a Canadian tax resident if the facts allow it to. In this regard, whether a foreign corporation is created in a treaty county or not, and whether or not the CRA guidelines apply to it, participation (e.g. by video conference) in Canada by a director in one board of directors meeting should not, in and by itself, cause the corporation to be considered to have its central management and control in Canada. If a majority of the board of directors are physically participating in the meetings from Canada, or there becomes a pattern of such participation taking place in Canada by a singular director, then an issue regarding Canada being the location of its central management and control could arise.

Carrying on business in Canada and permanent establishments


Under the Canadian income tax system, non-residents of Canada are liable to pay tax on their income from "carrying on business in Canada." Where Canada has a tax treaty with another country, the treaty will generally deny Canada's right to tax that income unless the non-resident carries on its business in Canada through a "permanent establishment". A permanent establishment can be created from a physical location, for example, a home office which is at the disposal of the employer ("fixed place of business PE"), an employee who habitually concludes contracts on behalf of the employer ("agency PE"), or services being carried on in the country for the same project over a prescribed time or revenue threshold ("services PE"). Whether or not a non-resident is exempt from Canadian income tax under a treaty, if it meets the "carrying on business in Canada" threshold, the non-resident must file a Canadian income tax return for the year.

There would appear to be a couple of scenarios that could arise where employees of non-resident entities, who normally perform their employment duties outside of Canada, are now required to perform such duties in Canada as a consequence of COVID-19 travel restrictions. In both cases, carrying on business in Canada issues could arise for the non-resident entity and, to a lesser extent, permanent establishment issues could arise.

(i) Scenario 1 Canadian employees in Canada

The first scenario involves those non-resident companies who employ Canadian residents to work for them, generally outside of Canada, but as a consequence of the travel restrictions, those employees are temporarily forced to exercise their employment duties from Canada.

CRA Guidance

(a) Carrying on Business Test

The CRA guidelines provide that where Canada has not entered into a treaty with the country in which the non-resident entity is resident, if the non-resident entity carries on business in Canada, it is required to file a return for that year. If it can be shown that the non-resident entity has satisfied the Canadian income tax threshold of "carrying on business in Canada" only because of the travel restrictions, the CRA will consider whether administrative relief is appropriate on a case-by-case basis. Again, as most non-treaty countries are tax havens or low tax jurisdictions, it is uncertain how sympathetic CRA will be to non-resident entities that fall within this "case by case" category.

Non-resident entities resident in a treaty country that are carrying on business in Canada – whether solely as a consequence of the employment duties now being performed in Canada due to travel restrictions, or as a consequence of other factors – and who do not meet the threshold of permanent establishment, are still required to file a return for that year in order to claim a treaty exemption from Canadian income tax.

(b) Fixed place of business PE

As an administrative matter, the CRA will not consider a non-resident entity to have a permanent establishment in Canada solely because its employees perform their employment duties in Canada as a result of those travel restrictions.

(c) Agency PE

Similarly, the CRA will not consider an agency PE to have been created for the non-resident entity solely due to a dependent agent concluding contracts in Canada on behalf of the non-resident entity while the travel restrictions are in force, provided that such activities are limited to that period and would not have been performed in Canada but for the travel restrictions.

(d) Services PE

Finally, the CRA will exclude, in determining whether an individual meets the 183-day presence test in the deemed services PE provisions that are in some of Canada's tax treaties (such as Article V(9)(a) of the Canada-U.S. Treaty), any days of physical presence in Canada due solely to travel restrictions.


With respect, the CRA guidelines on this issue provide little relief to non-resident entities. There would not be many scenarios where the temporary presence of employees performing employment duties in Canada would cause a non-resident entity to have a permanent establishment in Canada under the general definitions of that term (i.e. fixed place of business). Also, for an agency PE to exist, the employees or dependent agents must be "habitually" exercising their authority to conclude contracts in Canada in the name of their employer. So, this relief may be of little practical application and may indeed extend Canada's auditing abilities. Consider, for example, a non-resident entity from a treaty country that, pre-COVID-19, did not carry on any business activities in Canada (e.g. its Canadian resident employees worked for them exclusively outside of Canada). Assuming its Canadian resident employees returned home due the pandemic and are now exercising employment duties from Canada as a consequence of travel restrictions, those non-resident entities are now, possibly, considered to be carrying on business in Canada and will have to comply with Canadian law and file a treaty-exempt tax return. By still requiring the non-resident to file a Canadian tax return, the CRA is obtaining more information about the non-resident entity than it usually would be entitled to and goes against the guidance of the OECD to minimize unduly burdensome compliance requirements for taxpayers.

(ii) Scenario 2: Non-resident employees in Canada

The second scenario involves non-resident companies with a global business that had sent its employees to temporarily work in Canada and those employees had to remain in Canada due to the travel restrictions.


The CRA guidelines on this matter is poorly worded, and it is not clear, in the authors' opinion, whether the CRA guidelines contemplate this scenario. For example, the CRA's description of the "Potential Issue" states "A non-resident entity may employ individuals to work outside of Canada". This statement is confusing if CRA was contemplating, within the context of its guidelines, those scenarios where a non-resident company hires employees, say from within its country, who would then be expected to travel regularly to other countries, including Canada, to conduct business on behalf of its employer. We cannot think of any policy reason why the CRA would want to distinguish the first scenario from the second scenario in regards to the applicability of the administrative guidance it has introduced. However, if you are a non-resident employer that falls within this scenario, until CRA has clarified the matter, do not assume that these guidelines apply to you.

Cross-border employment income

(i) Non-resident employees


Non-residents of Canada who exercise employment duties in Canada are liable to tax on those wages subject to any relief provided under a tax treaty. Canada's tax treaties generally contain a provision that will deny the host country (e.g. Canada) the right to tax such wages if certain conditions are met. One of these conditions generally requires the employee not to be present in Canada in the aggregate for more than 183 days in any twelve month period commencing or ending in the fiscal year concerned. Non-resident employees who regularly exercise their employment in Canada and who are normally not present in Canada in excess of 183 days may now, as a consequence of the pandemic travel restrictions, be exercising such employment duties in Canada beyond the 183 day threshold impacting their eligibility for treaty relief.

CRA Guidance

The CRA has indicated that where such individuals are present in Canada, and are exercising their employment duties in Canada, solely as a result of the travel restrictions, those days will not be counted toward the 183 day test in Canada's tax treaties.


Those non-resident employees will continue to benefit from treaty relief provided the other conditions in those treaty provisions are met. One of those other conditions that need to apply along with the 183 day test is that the wages must not be paid by an employer who is a resident of Canada or by a non-resident employer in connection with a permanent establishment it has in Canada. So non-resident taxpayers must still be careful in determining whether they are eligible for treaty relief where they are impacted by the pandemic travel restrictions.

For U.S. employees falling into the latter category who cannot take advantage of the 183 day test, it is unfortunate that CRA did not provide administrative relief in respect of the $10,000 rule in Article XV of the Canada-U.S. Treaty. For example, U.S. resident employees who generally work only occasionally in Canada for a Canadian resident employer, or a U.S. employer with a permanent establishment in Canada, often are still treaty exempt in Canada on their income if that remuneration does not exceed the $10,000 threshold. U.S. resident employees could now easily exceed the $10,000 threshold if they are performing duties in Canada because of the travel restrictions. Hopefully the CRA will give consideration to extending these administrative guidelines to exclude from the $10,000 test the remuneration that was earned during the period the employee was impacted by the travel restrictions.

The CRA guidelines also do not address the more complex scenarios, such as where the employer has obtained a "qualifying non-resident employer" certification. Unlike the Regulation 102 waiver discussed below, the certification represents a blanket relief for an employer from its Canadian withholding tax obligations with respect to employment duties exercised in Canada by qualifying non-resident employees. One of the conditions for qualifying is that the employee "works in Canada for less than 45 days in the calendar year that includes the time of the payment or is present in Canada less than 90 days in any 12-month period that includes the time of the payment."

(ii) Canadian resident employees


Issues can also arise for Canadian resident employees of non-resident employers who are exercising employment duties in Canada solely because of the travel restrictions. Under Canadian rules, a non-resident employer is required to deduct and remit payroll deductions from the wages that it pays to an employee who is a resident of Canada, regardless of whether the employment duties are exercised in or outside of Canada. Where the employment duties are exercised outside of Canada, the country in which those duties are exercised may also be taxing those wages and requiring the employer to make payroll deductions in that jurisdiction. In these circumstances CRA will often issue a "letter of authority" to the employee authorizing the non-resident employer to reduce the Canadian payroll deductions to take into account the foreign tax credit available to the employee in respect of the foreign tax liability.

CRA Guidance

Under CRA's administrative guidelines, where an employee has been issued such a letter of authority, and the employee is forced to perform employment duties in Canada on an exceptional and temporary basis as a result of the travel restrictions, the letter of authority will continue to apply and the withholding obligations of the non-resident employer will not change in Canada as long as there are no changes to the withholding obligations of the non-resident entity in the other jurisdiction.


The authors would anticipate this relief having limited application since Canada's tax treaties would generally deny the other state taxing rights on those wages earned in Canada by a Canadian resident. One would think that in these circumstances there would generally be no payroll withholding obligations in that other country on those wages or, as an alternative, there would be a mechanism in place for the employee to request a waiver from the foreign tax administration, akin to CRA's letter of authority, authorizing the foreign employer not to make payroll deductions on those treaty exempt wages.

Regulation 102 and 105 Waiver Requests – Payments to non-residents for services provided in Canada


The Canadian tax system generally requires that amounts must be deducted or withheld and remitted in respect of payments for services rendered in Canada by non-residents ("Regulation 105") and remuneration paid to non-resident employees in respect of employment duties exercised in Canada ("Regulation 102"). In certain circumstances, most often when the non-resident employee or service provider is going to be exempt from tax in Canada on that income pursuant to a tax treaty, CRA may issue, upon request, a waiver of the withholding requirements on these payments. These waivers generally must be requested within certain time periods (e.g. 30 days) prior to the payments being made to allow CRA time to issue the waivers before payments are to be made to the non-resident. As a consequence of the CRA work stoppages arising during the COVID-19 crisis, the processing of waiver requests by CRA was interrupted causing delayed processing times.

CRA Guidance

Where CRA was unable to process the waiver requests within 30 days due to the work interruptions, the CRA has stated that it will not assess a person who fails to deduct, withhold or remit any of these amounts covered by the particular waiver request. CRA has also indicated that to avoid failure to withhold liability, the person paying the amount must be able to demonstrate that they have taken reasonable steps to ascertain that the non-resident person was entitled to treaty relief.

CRA has also announced that as a result of the work interruption and travel restrictions, urgent waiver requests may be submitted electronically on a temporary basis at

If the email option is used, the taxpayer should first send an email requesting instructions. Note that requests for Individual Tax Numbers (ITNs), which are necessary in order to process Regulation 102 waivers, cannot be expedited through this process.


Persons making payments to non-residents must proceed with caution as CRA's temporary administrative policy only applies where the sole reason a non-resident person did not obtain a waiver from the CRA was due to the work interruption. Also, CRA's caveat that the payer must be able to demonstrate that they have taken reasonable steps to ascertain that the non-resident person is entitled to treaty relief is concerning and many companies that have a zero risk tolerance may still wish to withhold on payments to these non-residents.

Disposition of taxable Canadian property by non-residents of Canada


Under the Canadian tax system, non-residents of Canada who dispose of certain taxable Canadian property must notify the CRA about the disposition either before they dispose of the property or within ten days after the disposition and provide payment, or security, to cover the estimated Canadian tax owing on the gain realized on the disposition. The CRA will then issue a certificate of compliance to the non-resident vendor (Section 116 Certificate) and a copy of the certificate to the purchaser. If the purchaser does not receive the Section 116 Certificate, the purchaser is required to remit a specified amount to the Receiver General for Canada and is entitled to deduct the amount from the purchase price.

CRA Guidance

As a result of the COVID-19 crisis, although CRA continued to accept applications for Section 116 Certificates, the processing of these applications was temporarily interrupted. Processing times have been, and are expected to continue to be, longer than normal. CRA has stated that where the Section 116 Certificate has not been issued by the time a purchaser's remittance is due (i.e., within 30 days after the end of the month in which the property was acquired), the purchaser or vendor may request that the CRA provide a comfort letter. The CRA comfort letter will advise the purchaser/vendor/representative to retain the funds they have withheld until the CRA's review is complete and the CRA requests the purchaser to remit the required tax. As long as the tax is remitted when requested, the CRA will not assess penalty and interest on the amount. The comfort letter may be requested on an expedited basis by calling the individual tax enquires line at 1-800-959-8281 or by sending an email to If the email option is used, the taxpayer should first send an email requesting instructions.

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