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A Quick Guide to the Taxation of Retiring Allowances

When an employee’s employment is terminated without cause, the employee will typically receive some form of a termination/severance payment. All or part of this termination/severance payment may be considered a “retiring allowance” under the Income Tax Act, providing the employee with additional options in respect of the allocation of the payment.

Whether a payment qualifies as a “retiring allowance” will depend on the reason for the payment. Under the Income Tax Act, a retiring allowance is an amount paid to an employee on or after the date his or her employment terminates for the purpose of recognizing long service, or for the loss of employment. As a result of the definition of “retiring allowance”, a payment made pursuant to the applicable employment standards legislation may or may not qualify as a retiring allowance, depending on the circumstances.

Employees with service prior to 1996 may be able to take advantage of preferential tax treatment by transferring part of their retiring allowance to a registered retirement savings plan (RRSP) or registered pension plan (RPP) regardless of their “contribution room”, up to certain limits.

The portion that can be transferred directly to a RRSP or RPP regardless of the contribution room is commonly referred to as the ‘eligible portion’ of the retiring allowance.

Here is how to calculate the eligible portion of a retiring allowance:

  • $2,000 for each year or part of a year of service before 1996 that the employee or former employee worked for the employer (or a person related to the employer); plus
  • $1,500 for each year or part of a year of service prior to 1989 of that employment in which none of the employer’s contributions to a RPP or deferred profit sharing plan were vested in the employee’s name when the employer paid the retiring allowance.

Eligible portion of a retiring allowance:

The eligible portion of a retiring allowance must be transferred directly into the employee’s RRSP or RPP on a tax-free basis. It is not determined by, nor does it affect, the employee’s regular RRSP contribution room. The direct transfer of the retiring allowance to an RPP may result in a pension adjustment (PA) that will affect the employee’s RRSP deduction limit in subsequent years. Note that an employee cannot transfer any part of an eligible retiring allowance directly to a spousal or common-law partner RRSP.

Ineligible portion of a retiring allowance:

The non-eligible portion of a retiring allowance (i.e. amounts over and above the eligible portion) may also be transferred directly into the employee’s RRSP, or a spousal or common-law partner’s RRSP, if the employee has the available RRSP contribution room. If the transfer is made directly to the RRSP, tax need not be withheld.

Things to keep in mind:

  • Contributions to an employee’s RRSP can only be made until the end of the year in which he or she turns age 71.
  • Employers contributing remuneration directly to an employee’s RRSP on his or her behalf should have reasonable grounds to believe that the employee has sufficient RRSP contribution room and can deduct the contribution for the year.

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A Quick Guide to the Taxation of Retiring Allowances

Fixed Term Contracts: Damages for “trouble and inconvenience”

In a recent decision[1], the Superior Court of Quebec held that the termination of a fixed term contract of employment constitutes a breach of contract which may allow for an award of damages for “troubles and inconveniences” suffered by the employee, in addition to damages for early termination.

The Plaintiff had been terminated without cause 15 months before the expiry of the term of his employment contract. The Court concluded that the unilateral termination of the Plaintiff’s fixed term contract was illegal and ordered the Employer to pay the Plaintiff an indemnity equivalent to the wages he should have received until the end of the contract.

The main interest of this case is the Plaintiff’s claim for $50,000 as damages for “troubles and inconveniences”, which required the Court to consider whether such damages could be compensated in the context of a fixed term contract of employment.

In its analysis, the Court first establishes that, while the termination of the Plaintiff was not based on serious grounds, it was not made in an abusive or humiliating fashion. However, the judge accepted that it had nonetheless caused severe stress and anxiety to the Plaintiff, as is almost always the case when a person is terminated.

The Court noted that according to a well-established jurisprudence[2], in the case of an indeterminate term contract, its unilateral termination by the employer is not, in itself, a civil fault, even if it prejudices the employee. Consequently, except when the termination is made in an abusive way, the compensation for troubles and inconveniences is not available to the employee. This rationale is grounded in the principle that either party to an indeterminate term contract of employment may terminate it by giving notice of its termination to the other party, as recognized under Section 2091 of the Civil Code of Quebec.

However, a fixed term contract is binding on the parties until its expiry and may only be unilaterally resiliated for a serious reason. Thus, the employer who, without a serious reason, resiliates the fixed term contract of an employee does not exercise a right, but rather breaches one of its contractual duties. If the evidence shows that this breach of contract caused troubles and inconveniences, such as stress or anxiety, the terminated employee could be compensated for these damages. In this matter, the Court awarded the Plaintiff $5,000 for troubles and inconveniences.

Thus, according to this decision, a distinction must be made between the unilateral resiliation of indeterminate and fixed term contracts with regards to the award of damages for non-pecuniary loss.

[1] Bouasse v. Gemme canadienne PA inc., 2016 QCCS 1263.

[2] 1994 CanLII 5837 (QC CA).

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Fixed Term Contracts: Damages for “trouble and inconvenience”

The Duty to Provide Reasonable Notice of Termination Cuts Both Ways

It is a relatively little-known fact to non-lawyers that just as employers are required to provide employees with reasonable notice of termination, employees are likewise required to provide employers with reasonable notice of resignation.  A 2016 Ontario Superior Court of Justice case has recently confirmed same.

In the case of Gagnon & Associates Inc. v. Jesso et al., the company sought damages from employee Barry Jesso (“Jesso”) for having resigned his employment without notice.  Jesso had been employed by Gagnon & Associates Inc. (the “Company”) for 10 years and at the time of resignation was responsible for approximately 30% of the Company’s annual HVAC sales.  His colleague Patrice Comeau, also a defendant in the litigation, was responsible for a further 30% of the Company’s annual sales.  In 2006 Jesso and Comeau approached one of the Company’s competitors and entered into an agreement with it to open a satellite office.  It was at that point that they both provided the Company with their notices of resignation.

The court stated that the notice of resignation period required by an employee will be a function of the employee’s position with the employer and the time that it would reasonably take the employer to replace the employee or otherwise take steps to adjust to the loss of the employee.  The court then made a finding on the evidence that although Jesso was not a fiduciary employee, a reasonable notice of resignation period was 2 months given that: (i) Jesso was responsible for a significant percentage of the Company’s sales; (ii) the market for experienced HVAC salespeople was limited and it would likely take approximately 2 months to find a replacement; and (iii) Jesso knew that the Company’s other senior salesperson was resigning on the same day, thereby putting the Company in a very difficult position.

It is important to bear in mind that where an employee has signed a proper employment agreement which sets out a notice of resignation period, the employee will probably be bound by that contractual provision.  Likewise, for employees who work in jurisdictions that have employment standards legislation containing a notice of resignation provision, they may be bound by same.  Finally, there is a long line of separate case-law which confirms that fiduciary employees have obligations to provide reasonable notice of resignation to their employers.  That said, the Gagnon v. Jesso case is a helpful reminder that even when there is no contract, no legislation and no fiduciary relationship, an employee may still owe his or her employer a reasonable notice of resignation period.

The case of Gagnon & Associates Inc. v. Jesso et al. can be found here:  https://www.canlii.org/en/on/onsc/doc/2016/2016onsc209/2016onsc209.html?autocompleteStr=gagnon%20%26%20associates&autocompletePos=3.

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The Duty to Provide Reasonable Notice of Termination Cuts Both Ways

Court finds termination clause purporting to limit a 17-year employee’s termination notice to the 8 week statutory minimum to be “clear, express and unambiguous”

An Alberta court recently had the opportunity to consider the question of whether a termination clause was effective to take away an employee’s entitlement to pay in lieu of notice of termination in excess of the minimum set out in the Alberta Employment Standards Code (“Code”). The Plaintiff in this case was a 17 year employee who was terminated without cause. The employer paid her the equivalent of 8 weeks salary, relying on a termination clause in the employment agreement which purported to limit her termination notice to the amount required under the Code. Given her length of service, the employee was entitled to the maximum of 8 weeks.

The Plaintiff sued for wrongful dismissal and applied for summary judgment. The sole issue for the summary judgment application was whether the termination clause barred the Plaintiff’s claim for damages beyond the 8 weeks. The clause in question stated:

In the event that [the employer] terminates your employment without cause, [the employer] will provide the notice or pay in lieu of notice required by the Alberta Employments Standard [sic] Code or other applicable legislation. You are not entitled to any other termination notice, pay in lieu of notice, or other benefits.

The Court considered the termination clause to be “clear, express and unambiguous” and stated that it was “difficult to think of wording that might make the employer’s intention any clearer”. The Court therefore dismissed the Plaintiff’s application, finding that the employer’s defence that the claim was barred by the termination clause had merit, and accordingly the matter should proceed to trial, absent an application by the employer for summary dismissal.

This decision provides helpful guidance to employers, although it is important to note that there is also a significant body of case law invalidating termination provisions. As recognized by the Court in this case, in order for an agreement to exclude an employee’s common law notice, it must be clear and unambiguous. Because section 3 of the Code preserves an employee’s common law rights, merely referring to the notice required under the Code has, in other cases, not been considered sufficient to limit an employee to the minimum notice requirements under the Code. Absent a reference to the specific termination notice sections of the Code (sections 56 and 57) or wording such as “the minimum requirements under the Code”, some decisions have found that similarly-worded termination clauses did not take away the employee’s common law right to reasonable notice, although each case needs to be decided on its individual facts.

This case emphasizes the importance of careful drafting of termination provisions, and shows that if done correctly, an employer can significantly reduce its liability on a termination without cause.

Stangenberg v Bellamy Software, 2016 ABQB 160

http://www.canlii.org/en/ab/abqb/doc/2016/2016abqb160/2016abqb160.pdf

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Court finds termination clause purporting to limit a 17-year employee’s termination notice to the 8 week statutory minimum to be “clear, express and unambiguous”

Watch Out: Ontario Ministry of Labour Inspection Blitzes/Initiatives Are Coming

The Ontario Ministry of Labour recently announced its 2016 and 2017 enforcement blitz and initiative schedule. In an effort to emphasize the importance of protecting workers’ rights and ensuring employer compliance with both the Occupational Health and Safety Act (the “OHSA”) and the Employment Standards Act, 2000 (the “ESA”), the Ministry has prepared a coordinated inspection blitz schedule under the Employment Standards Program and the Occupational Health and Safety Program. The blitzes commence this month and are set to continue until March 2017.

The Employment Standards inspection blitzes will focus on high-risk sectors where there is a history of ESA violations and/or where young workers, vulnerable workers and/or an increasing number of Ontarians are employed. This will include the following sectors: Construction, Food Services, Retail Trade, Professional Services, Services to Buildings and Dwellings, Other Amusement and Recreation Industries, and Personal Care Services.

The OHSA inspection blitzes will focus on sector-specific hazards with the aim of raising awareness and increasing compliance with the OHSA. The provincial OHSA Blitzes will target the Construction, Industrial and Mining Sectors with a focus on: Falls, New and Young Workers, Mobile Cranes and Material Hoisting, and Safe Material Tramming Underground.

In addition to province-wide blitzes, the Ministry will conduct local blitzes in predetermined regions throughout the province targeting specific sectors. For the ESA blitzes this will include the Child Day-Care Services, Manufacturing, Fitness Centres, Tow Truck Companies, and Small Manufacturing sectors; for the OHSA blitzes this will include the Industrial and Construction sectors.

The Ministry will report the results of its inspections shortly after they are completed and will track its findings to ensure improvements in compliance and fewer workplace injuries. The Ministry reports that since 2005, it has recovered over $144 million in wages and other money owed to employees through its inspections, claims and collections and, since 2008, has issued more than one million compliance orders for safety issues across all sectors.

Even if you are not in a targeted sector, be aware that in addition to the 2016/2017 inspection blitzes, the Ministry’s officers will continue to conduct their ongoing enforcement efforts, so they may still show up at your door. As such, all employers, and particularly those in sectors targeted by the 2016/2017 blitzes, should take steps to ensure that their workplaces are compliant with both the ESA and OHSA. The Ministry of Labour’s Inspection Blitzes and Initiatives Announcement and 2016-2017 Schedules can be found here.

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Watch Out: Ontario Ministry of Labour Inspection Blitzes/Initiatives Are Coming

Ontario Retirement Pension Plan: a guide

Media coverage about the Ontario Retirement Pension Plan (ORPP) has been unrelenting for the past two years. The Ontario government has made many announcements setting out its vision for its new, government-run defined benefit pension plan for Ontario employees which will be similar to the Canada Pension Plan (CPP).

Are you finding it hard to keep track? Here is an up-to-date guide. More details are in the articles listed at the end of this guide.

When is the ORPP coming into effect?

The Ontario government recently changed the effective dates. It’s likely that the following schedule is final.

Employers who had an active registered pension plan on August 11, 2015, are exempt until January 1, 2020. It doesn’t matter if their existing plan does not currently qualify as “comparable” under the ORPP rules. It doesn’t matter if their existing pension plan doesn’t apply to all of their employees. All of those lucky employers have until January 1, 2020 to decide how to react to the ORPP.

All other employers of Ontario workers will be required to start making contributions to the ORPP on the following dates, unless they adopt a “comparable” registered pension plan:

  • January 1, 2018 if more than 50 employees; and
  • January 1, 2019 if 50 or fewer employees.

What types of pension plans will qualify as “comparable”? 

The Ontario government has not budged from its position that group registered retirement savings plans do not qualify as “comparable”. It is now certain that Ontario employers who offer only a Group RRSP, deferred profit sharing plan or other type of non-pension savings plan, will have to either change their plans, or join the ORPP.

See the links at the end of this guide for details of what registered pension plans do qualify as “comparable.” Beware: this is not a simple, blanket exemption. Every registered pension plan will have to be closely examined to ensure that it perfectly complies with the details of what the Ontario government deems to be “comparable”. Does your registered pension plan have a waiting period for plan entry or service caps? Are there classes of employees who are not required to join your plan (e.g. certain fixed-term, contract, call-in or other classes of permitted excluded employees)? If the answer is yes, not all of your employees will be members of a “comparable” plan for ORPP purposes. Those employees will need to join the ORPP, while your other employees will not.

The ORPP Administration Corporation will soon start communicating with employers to confirm their enrolment date in the ORPP, and to verify which employers have “comparable” plans and are therefore exempt.

Is the ORPP now law?                        

Yes. In 2015 a very brief piece of legislation was adopted without many specifics. On April 14, 2016 the Ontario government released Bill 186, the Ontario Retirement Pension Plan Act (Strengthening Retirement Security for Ontarians), 2016. It is 50 pages of legislative details about the new regime. More details have been promised in regulations that will be released in the summer of 2016.

Will it go away if the Canada Pension Plan is enhanced?

Don’t count on it. Federal, provincial and territorial finance ministers will be meeting in June of 2016 to discuss possible changes to the CPP. It’s a long and uncertain political road to get to an enhanced CPP. It may never happen. Meanwhile, the Premier of Ontario has repeatedly said that the Ontario government is pressing ahead with the ORPP.

What’s new?                                    

The recent introduction of Bill 186 in the Ontario Legislature (on April 14, 2016), with all of its detailed rules about the ORPP, is exciting for lawyers. Details in the Bill include a regime for enforcement, guidelines for the collection of personal information, unsurprising points about the treatment of pensions earned under the ORPP on marriage breakdown, death, and so on. Many of these details are not new, so the Bill is less exciting for employers.

One interesting new detail in the Bill applies to directors of corporations. If they receive a “stipend or remuneration” for their service as a director, they will be subject to the ORPP unless an exemption applies.

Want more information?

Contact any member of the Dentons Canada pension group, or click on the following links:

 

 

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Ontario Retirement Pension Plan: a guide

The Right to Strike: Changes to Alberta Labour Legislation

In light of the Saskatchewan Federation of Labour v Saskatchewan, 2015 SCC 4 decision, the Alberta government has undertaken a review of the Labour Relations Code (“LRC”) and the Public Service Employees Relations Act (“PSERA”). Following a consultation with affected employers, unions and employees, on March 15, 2016 the Alberta government introduced Bill 4, An Act to Implement a Supreme Court Ruling Governing Essential Services (“Bill 4”).

Prior to the amendments, public sector employees governed by PSERA and the LRC could not strike. The new legislation, colloquially known as the essential services legislation, allows for strikes and lockouts of public sector employees who could not previously strike. This includes health care workers employed by Alberta Health Services and other approved hospitals, employees of the provincial government and agencies, boards and commissions and non-academic staff at post-secondary institutions. The amendments do not impact firefighters, non-Alberta Health Services ambulance operators and their attendants, police officers, academic staff and graduate students at post-secondary institutions.[1]

The amendments will allow employees to strike while still maintaining essential services. In order to maintain essential services, the employer and the employees’ union will negotiate essential services agreements. The amendments require the negotiations to be in good faith and make every reasonable effort to enter into an essential services agreement. The following must be included in all essential services agreements:

  1. provisions that identify the essential services that are to be maintained by employees in the bargaining unit in the event of a strike or lockout;
  2. provisions that set out the classifications of employees, and the number of positions in each classification, required to perform the essential services referred to in clause (a);
  3. provisions that set out a method by which the employees capable of performing and qualified to perform essential services will be assigned to perform those services during a strike or lockout;
  4. provisions that set out the procedures to be followed in responding to emergencies and foreseeable changes to the essential services that need to be maintained during a strike or lockout;
  5. provisions describing changes or permitted changes, if any, to the terms and conditions of employment that are to apply to designated essential services workers under sections 130(2) and 147(4) of the Act and sections 24.1(2) and 46(2.1) of the PSERA;
  6. provisions that identify sufficient umpires, but at least one umpire, to be available to provide timely resolution of disputes under section 95.7; and
  7. any other provisions specified in the regulations.

Should parties be unable to agree on the contents of an essential services agreement, they may agree to use an umpire to mediate and, if necessary, may seek guidance from the Commissioner (the individual who oversees the administration of the essential services legislation, as defined in the legislation), to assist with settling the essential services agreement.

Once an essential services agreement is reached, it must be filed for each round of collective bargaining. The parties must also declare to the Commissioner: (a) whether the agreement ensures that essential services are maintained during any strike or lockout; and (b) whether the provision of essential services required by the essential services agreement during a strike or lockout will substantially interfere with meaningful collective bargaining. The Commissioner has several options should an essential services agreement be unacceptable, including making unilateral amendments to the agreement.

An essential services agreement accepted for filing is binding on: (a) the employer; (b) the bargaining agent; and (c) every employee of the employer who is in the bargaining unit represented by the bargaining agent.

Bill 4 has since undergone its second reading and amendments during the Committee of the Whole and on April 16, 2016, the Bill passed its third reading in the legislature. Bill 4 is currently waiting Royal Assent. The deadline to amend the legislation was extended to the end of the spring 2016 sitting of the Alberta Legislature.

Once given Royal Assent and the amendments have come into force, a number of public sector employees will now have the right to strike with only essential services designated workers being prohibited to do such.

[1] However, the Post-secondary Learning Act is currently under review.

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The Right to Strike: Changes to Alberta Labour Legislation

Miscarriage is a Disability

In a recent interim decision of the Ontario Human Rights Tribunal, adjudicator Jennifer Scott found that miscarriage could constitute a “disability”.  The door was also left open for employees terminated due to miscarriage to claim discrimination due to sex.

In the case of Mou v. MHPM Project Leaders, Mou was off work for approximately 3 weeks in January 2013 due to injuries sustained from a slip and fall accident.  She subsequently suffered a miscarriage in June of the same year and was off work for 2 days.  Her employment was terminated in February 2014 and Mou alleged that the termination related to her absences from work.  In February of 2016, a hearing took place to determine the threshold issue of whether Mou had established that she suffered from a disability.

The employer argued that in order for an illness or injury to constitute a disability, there must be some aspect of permanence or persistence to the condition.  In short, the employer argued that Mou’s health issues were temporary in nature and that Mou fully recovered from them prior to her termination.  Adjudicator Scott felt otherwise.  In coming to her decision she noted that while normal ailments such as a cold or flu are transitory, a miscarriage is not a common ailment and is not transitory.  In reaching that conclusion, Adjudicator Scott made reference to the fact that Mou continued to feel “significant emotional distress from the miscarriage” to the date of the hearing.

No mention is made in the decision as to whether any expert evidence was adduced by the employer with respect to whether miscarriage is a common ailment and it is suspected that no such evidence was provided.  One wonders whether the decision might have been different if the adjudicator had heard evidence to the effect that at least 1 in every 4 pregnancies is believed to end in miscarriage, or that a majority of women have at least one miscarriage during their childbearing years.  While there is no doubt that miscarriage can lead to emotional distress and even physical problems, it is possible that had this expert evidence been provided, it might have affected the adjudicator’s conclusion that miscarriage is not a common ailment.

Separate and apart from the issue of the miscarriage, it is clear from the decision that Mou’s slip and fall injuries also constituted a disability as they took approximately 3 weeks to heal.  Just as importantly, Adjudicator Scott made note of the fact that the employer invited Mou to apply for short-term disability coverage after her slip and fall, which is presumed to have been an indication that the employer believed her to be disabled.

It is important to note that although the Tribunal concluded that a miscarriage can constitute a disability, there has not yet been a final hearing in this case and no determination has been made as to whether Mou’s disability was a factor in her employer’s decision to terminate employment.

The case of Mou v. MHPM Project Leaders may be found here:  http://www.canlii.org/en/on/onhrt/doc/2016/2016hrto327/2016hrto327.html.

 

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Miscarriage is a Disability

UPDATE ON THE EXEMPTION FOR NON-RESIDENTS FROM PAYROLL WITHHOLDING

The Canada Revenue Agency (“CRA”) recently introduced a program to ease the administrative burden associated with Canadian withholding on the salary, wages, or other remuneration paid to non-resident employees performing their duties in Canada for a short period of time. These measures aim to remove certain ‘qualifying non-resident employers’ and ‘qualifying non-resident employees’ from the withholding requirements imposed under subsection 153(1) of the Income Tax Act (Canada) (the “Tax Act”). Furthermore, these measures will alleviate the need for qualifying non-resident employees to apply for waivers from withholding (commonly known as regulation 102 waivers).

THE EXISTING EMPLOYEE WITHHOLDING REGIME AND NON-RESIDENTS OF CANADA

The Tax Act imposes employee withholding on non-residents to the extent they perform any employment duties in Canada regardless of whether these non-resident employees will ever have an ultimate tax liability under the Tax Act (for instance where an income tax treaty applies). The Tax Act also imposes penalties for failure to withhold amounts required even where no tax would ultimately be payable. Amounts which are withheld and remitted can only be recovered by the employee if they file a Canadian income tax return.

To deal with such situations where a treaty applies, the CRA allows for employees resident in a country with which Canada has a tax treaty to apply for a regulation 102 waiver which can be presented to the employer in order to waive the withholding requirements. However, the process for obtaining a regulation 102 waiver requires at least thirty days of lead time and is time consuming to complete, making the application impractical in many situations. Moreover, the CRA has imposed its own administrative policies over and above the requirements set out in most treaties, making regulation 102 waivers costly and burdensome to obtain.

THE NEW EXEMPTION

Recognizing that the existing system was impractical for many business travelers, an additional program was announced, allowing “qualifying nonresident employers” to forego Canadian tax withholding on amounts paid to “qualifying non-resident employees”.

A ‘qualifying non-resident employee’ is defined in the Proposed Amendments to mean an employee who (a) is, at that time, resident in a country with which Canada has a tax treaty, (b) not liable to tax under Part I of the Tax Act in respect of the payment because of that treaty, and (c) works in Canada for less than 45 days in the calendar year that includes that time or is present in Canada for less than 90 days in any 12–month period that includes that time.

A ‘qualifying non-resident employer’ is defined in the Proposed Amendments to mean an employer whom, (a) is resident in a country with which Canada has a tax treaty, (b) does not, in the relevant year, carry on business through a permanent establishment in Canada, and (c) is certified by the CRA by making an application in the prescribed form at least 30 days prior to the employee performing the services in Canada.

Because of this arbitrary restriction set out in the Proposed Amendments, there could still be a large number of business travelers who will either be required to apply for a regulation 102 waiver, or be subject to withholding tax and be required to file a return to obtain a refund of the tax pursuant to protections under one of Canada’s tax treaties.

RECORD KEEPING AND REPORTING FOR QUALIFYING NON-RESIDENT EMPLOYERS

It should be noted that even though this process removes the employer from the withholding and remitting requirements for qualifying non-resident employees, certain reporting obligations remain. Qualifying nonresident employers will be required to:

  1. determine whether the employees are resident in a country with which Canada has a tax treaty,
  2. track and record the number of days each employee is either working in Canada or is present in Canada and the income attributable to these days,
  3. complete and file the applicable Canadian income tax returns for the calendar years under certification, and
  4. prepare and file a T4 Summary and Information Return for the employees that are not excluded by proposed subsection 200(1.1) of the Regulations.

Proposed subsection 200(1.1) of the Regulations exempts T4 reporting for amounts that qualify under these new exemptions if the employer, after reasonable inquiry, has no reason to believe that the employee’s total amount of taxable income earned in Canada under Part I of the Act during the calendar year is more than $10,000.

WHAT THIS MEANS FOR NON-CANADIAN BUSINESSES

While these new exemptions do not cover every type of business traveler to Canada, they are very helpful for employers that periodically send employees to Canada for short periods of time. This is especially true in circumstances where business trips are unplanned or occur in a manner that does not allow sufficient time to obtain a regulation 102 waiver. For these non-resident employers, it will certainly be easier to comply with this new program, rather than rushing employees to obtain a regulation 102 waiver or withholding and remitting tax on the employees’ behalf. Once in the program, qualifying non-resident employers should continue to monitor employee travel and require employees that will be working in Canada for more than 45 days or present in Canada for more than 90 days to apply for regulation 102 waivers to ensure no withholding will be required.

We would be pleased to assist should you require assistance in making an application for the new program.

 – –Larry Nevsky, Associate, Dentons Canada LLP, [Toronto].(A modified version of this article originally appeared in CCH Tax Topics, number 2289, January 21, 2016).

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UPDATE ON THE EXEMPTION FOR NON-RESIDENTS FROM PAYROLL WITHHOLDING

What If Your Independent Contractor Is Really a Dependent Contractor?

Many employers hire independent contractors to assist in their workplace and in most cases, the assumption is that doing so will result in minimal or no notice of termination having to be paid at the end of the relationship.  A recent case has confirmed that that assumption can be a risky one to make.

Earlier this year, the Ontario Superior Court of Justice released its decision in the case of Keenan v. Canac Kitchens.  For those familiar with employment law in Ontario, the name Canac Kitchens will be familiar as it has been on the losing end of a number of employment law cases.

In this particular case, Lawrence and Marilyn Keenan were employed by Canac Kitchens beginning in 1976 and 1983 respectively.  In 1987, both were advised that their employment was coming to an end but that they could carry on as independent contractors.  Independent contractor agreements were signed and the Keenans carried on as before.  They continued working for Canac until the company closed its operations in 2009.  No notice of termination or pay in lieu of notice was provided.

The court looked back at the 2009 Ontario Court of Appeal decision in McKee v. Reid’s Heritage Home Limited and confirmed that employment relationships exist on a continuum, with employees at one end, independent contractors at the other, and dependent contractors in the middle.  The court also confirmed that unlike independent contractors, dependent contractors are entitled to reasonable notice of termination.  In determining the status of the Keenans, the court looked to the following:

  • Whether the individuals were limited exclusively to the service of the company;
  • Whether the individuals were subject to the control of the company, not only as to the product sold, but when, where and how it was sold;
  • Whether the individuals had an investment in the “tools” relating to their service;
  • Whether the individuals undertook any risk in relation to their business, or had an expectation of profit apart from a fixed fee or commission; and
  • Whether the business was that of the individual or the company.

While there were some factors in this case which suggested an independent contractor agreement, the court was particularly fixated on the fact that the Keenans worked exclusively for Canac until 2007.  Although they did some small amount of work for a competitor between 2007 and 2009 due to a shortage of work at Canac, the judge accepted that Canac turned a blind eye to same.  In other words, for all intents and purposes the Keenans provided services only to Canac for almost the entire duration of the relationship.  Moreover, Canac had almost complete control of the work performed by the Keenans.

As a result, the court found that although the Keenans were contractors, they were in a dependent relationship to Canac and therefore entitled to notice of termination.  Due to the 32 and 25 years of service provided by Lawrence and Marilyn respectively (which resulted in an average length of service of 28.5 years between the two of them), the court found that a whopping 26 month notice period was reasonable.

As always, independent contractor agreements should be entered into with careful consideration as to the true nature of the relationship between the parties.  As the saying goes, “if it walks like a duck and talks like a duck, the chances are good that it’s a duck”.  In such a case, no amount of contractual drafting will lead to another conclusion.

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What If Your Independent Contractor Is Really a Dependent Contractor?