Sign up for tax alert emails    GTNU homepage    Tax newsroom    Email document    Print document    Download document

May 21, 2020

Canada Revenue Agency issues guidance on international income tax issues resulting from COVID-19 travel restrictions

Executive summary

On 19 May 2020, the Canada Revenue Agency (CRA) published guidance on various international income tax issues resulting from COVID-19 related restrictions on travel (the Travel Restrictions) and CRA service interruptions. The administrative guidance is intended to address concerns raised by taxpayers and their representatives and covers the following Canadian income tax topics:

  • Income tax residency
  • Carrying on business in Canada and permanent establishments
  • Cross-border employment income
  • Waiver requests relating to payments to nonresidents for services provided in Canada
  • Dispositions of taxable Canadian property by nonresidents of Canada

The temporary relieving positions outlined in the guidance will apply for the period 16 March to 29 June 2020 but may be extended if necessary or rescinded if no longer required.

The guidance and relieving measures are described below.

Detailed discussion

Income tax residency

The COVID-19 travel restrictions may result in issues concerning an individual’s or corporation’s residency status for Canadian income tax purposes, since an individual (including directors of a corporation) may have been required to remain in Canada.


The CRA has indicated that if an individual visiting Canada from another country has had to remain in Canada solely because of the Travel Restrictions, this factor alone will not cause the CRA to consider the individual to be a resident of Canada under the common-law factual residency test.

In addition, on a temporary administrative basis, the days during which an individual is present in Canada and is unable to return to their country of residence solely as a result of the Travel Restrictions will not count towards the 183-day limit for the deemed residency test. This position will apply if (among other things) the individual is usually a resident of another country and intends to return, and does in fact return, to their country of residence as soon as they are able to do so.


Under common law, a corporation may be considered resident in Canada if its “central management and control” is located in Canada. One of the key factors considered in applying this common-law residency test is the jurisdiction in which the meetings of the board of directors take place. A corporation that was resident in a foreign jurisdiction prior to the implementation of the COVID-19 Travel Restrictions may have one or more directors present in Canada and unable to travel to the foreign jurisdiction to attend board meetings. There is concern that this may result in a corporation being considered resident in Canada while also resident in the foreign jurisdiction.

Where the issue of dual residency is resolved under one of Canada’s income tax treaties that contains a residency tie-breaker rule that looks to the corporation’s place of effective management (among other factors), the CRA has indicated that it will not consider the corporation to be resident in Canada solely on the basis that one or more directors of the corporation had to participate in a board meeting from Canada because of the Travel Restrictions. As the location of board meetings is only one element in determining the location of a corporation’s place of effective management, the CRA cautions that they could still conclude a corporation is resident in Canada if other factors point to Canada as the place where the actual central management and control of the corporation takes place.

In the case of dual residency with non-treaty countries, the CRA will determine residency on a case-by-case basis.

The CRA will apply the same position in respect of other foreign entities that are considered corporations under Canadian income tax law (such as limited liability companies). In addition, where appropriate, a similar approach may be applied in determining the residency of a commercial trust.

Carrying on business in Canada and existence of a permanent establishment

As a result of the Travel Restrictions, individuals who normally work outside of Canada for a nonresident entity may have been required to exercise their employment duties in Canada. In certain circumstances, this may result in a nonresident entity carrying on business in Canada or may cause the entity to have a permanent establishment in Canada.

Carrying on business in Canada

If a nonresident entity is resident in a treaty country and is carrying on business in Canada in a taxation year but does not have a permanent establishment in Canada, the nonresident entity is required to file a treaty-based income tax return for that year in order to claim the treaty exemption from Canadian income tax. The CRA has indicated that this filing obligation will continue to apply for any taxation year of a nonresident entity that overlaps with the period during which the Travel Restrictions are in place.

If a nonresident entity is resident in a non-treaty country and it can be demonstrated to the CRA that the nonresident entity meets the threshold of “carrying on business in Canada” solely because of the Travel Restrictions, the CRA will consider whether administrative relief from the obligation to file a Canadian income tax return (and presumably pay tax in Canada) is appropriate on a case-by-case basis.

Permanent establishment determination

On an administrative basis, a nonresident entity will not be considered to have a permanent establishment in Canada if its employees perform their employment duties in Canada solely as a result of the Travel Restrictions. In addition, the CRA will not consider an “agency” permanent establishment to exist solely due to a dependent agent concluding contracts in Canada on behalf of the nonresident 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.

The CRA will also exclude from the 183-day presence test in the “services permanent establishment” provision of Canada’s tax treaties (e.g., Article V(9)(a) of the Canada-US treaty) any days of physical presence in Canada that are solely the result of the Travel Restrictions.

Cross-border employment income

The Travel Restrictions may also result in taxation issues relating to cross-border employment income. The CRA has provided the following guidance for employees that are resident in the United States (US) or in other treaty countries and Canadian resident employees.

Employees resident in the US or in other treaty countries

As a result of the Travel Restrictions in place, US residents who regularly exercise their employment in Canada but would normally not be present in Canada for more than 183 days (and, for that reason, are not normally taxable in Canada on their employment income under the Canada-US treaty) may now be exercising their duties in Canada for an extended period of time.

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 the Canada-US treaty. As such, these individuals will continue to benefit from the treaty relief provided under the tax treaty.

For employees that are resident in other countries with which Canada has a tax treaty, the CRA will take the same administrative approach when applying the days of presence test in the relevant tax treaty.

Canadian resident employees

For Canadian income tax purposes, a nonresident employer is generally required to deduct withholding tax at source from the salary and wages it pays to Canadian-resident employees (regardless of where the services are rendered). The CRA may, however, issue a “letter of authority” to an employee that authorizes the nonresident employer to reduce the Canadian deductions at source to account for any foreign tax credit available to the employee.

Where a Canadian resident employee of a nonresident entity is required to perform their employment duties in Canada on an exceptional and temporary basis as a result of the Travel Restrictions and that employee has been issued a letter of authority for the current taxation year (during which the Travel Restrictions were in place), the CRA has indicated that the letter of authority will continue to apply and the withholding obligations of the nonresident entity will not change in Canada. This relieving measure applies only if there are no changes to the withholding obligations of the nonresident entity in the other jurisdiction.

Regulations 102 and 105 waiver requests

Due to the COVID-19 crisis, the processing of requests to waive the withholding requirement under Regulation 102 (for remuneration paid to a nonresident officer or employee for services performed in Canada) and Regulation 105 (for payments for services rendered in Canada by nonresident service providers) was temporarily interrupted. While the CRA has since resumed processing in a limited capacity, the processing times have been longer than usual.

The CRA had indicated that as a result of the interruption and the Travel Restrictions, urgent waiver requests may be submitted electronically on a temporary basis. Further information on this process is currently under development by the CRA.

In circumstances where a Regulation 102 or 105 waiver request was submitted to the CRA but (as a result of the interruption) was not processed by the CRA within 30 days, the payer will not be assessed for failure to deduct, withhold or remit any amount as required by Regulations 102 and 105, in respect of an amount paid to a nonresident person covered by the particular waiver request. However, to qualify for this relief, the person paying the amount must demonstrate that they have taken reasonable steps to ascertain that the nonresident person was entitled to a reduction or elimination of Canadian withholding tax under an income tax treaty with Canada. Also, the nonresident and the person paying the amount must otherwise fulfil their Canadian reporting and remitting obligations in respect of the waiver application.

Other situations where a waiver request could not be submitted due to the Travel Restrictions, or other consequences of the COVID-19 crisis, and no amounts were withheld under Regulations 102 or 105, will be reviewed by the CRA on a case-by-case basis.

Section 116 compliance certificates for dispositions of taxable Canadian property

The processing of requests for section 116 compliance certificates was temporarily interrupted due to the COVID-19 crisis. While the CRA has since resumed processing in a limited capacity, the processing times have been longer than usual.

If a vendor has submitted a request for a section 116 compliance certificate and the 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 a comfort letter from the CRA.

The comfort letter advises the purchaser/vendor/representative to retain the funds they have withheld but not remitted to the CRA until the CRA’s review is complete and the CRA requests the purchaser to remit the required tax. No penalty will be assessed by the CRA provided the tax is remitted when requested.

Urgent requests for comfort letters may be submitted on a temporary basis. Requests for a comfort letter can be made by contacting the CRA’s individual tax enquiries line at +1 800 959 8281.

Learn more

For further details, refer to the CRA guidance, which is available on the CRA website.


For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP (Canada), Montréal
Ernst & Young LLP (Canada), Toronto



The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.


Copyright © 2024, Ernst & Young LLP.


All rights reserved. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP.


Any U.S. tax advice contained herein was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.


"EY" refers to the global organisation, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.


Privacy  |  Cookies  |  BCR  |  Legal  |  Global Code of Conduct Opt out of all email from EY Global Limited.


Cookie Settings

This site uses cookies to provide you with a personalized browsing experience and allows us to understand more about you. More information on the cookies we use can be found here. By clicking 'Yes, I accept' you agree and consent to our use of cookies. More information on what these cookies are and how we use them, including how you can manage them, is outlined in our Privacy Notice. Please note that your decision to decline the use of cookies is limited to this site only, and not in relation to other EY sites or Please refer to the privacy notice/policy on these sites for more information.

Yes, I accept         Find out more