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Hi,
I am a PR card holder in canada, working for indian organisation electronically and visit India for 15 days twice a year. My employer is paying salary after deducting Tax Deducted at Source (TDS) and Provident Fund etc in my NRO account in India.
Q1. While filing my Income tax return in canada, i disclose Indian income and taxes deducted , can i get the tax credit in canada on the tax deducted in india by my employer ?
Q2. Is my employer liable to register in canada for the purpose of shadow payroll as they do not have any operations outside India ?
Q3. What is the right way for both the parties i.e me and my employer to comply with the canadian and indian law ?
Hi Anil,
Your Indian employer must register for a Canadian payroll account number, because you (employee of Indian company) are physically working in Canada. This is known as a shadow payroll. As a result, Canadian payroll taxes should be deducted from your paychecks and remitted by your employer to the CRA. You should also receive a T4 (employment income) slip. To avoid double taxation, your Indian employer should reduce the TDS from your paychecks in India to account for the Canadian payroll taxes also being deduct - you should confirm this point with an India Chartered Accountant.
Until this is corrected, you have two choices:
1. Report the Indian Income as foreign source income on line 104 of your T1 Canadian Personal Tax Return, and claim a foreign tax credit on form T2209 of your Canadian tax return for the Indian taxes deducted. The CRA can challenge this approach, rightfully so, because the Indian Income is 'Canadian source', since you worked physically in Canada. Should they challenge this approach, the foreign tax credit will be disallowed, and you will be double taxed.
2. Have your employer issue a T4 slip for the past year, and correctly remit the Canadian payroll taxes as they were supposed to. This is the right approach, and you will not be double taxed. BUT, your Indian employer will be penalized for failure to remit payroll taxes on time, and will be responsible for recovering the Indian excess payroll taxes paid.