What happens if my employer withheld Canadian tax it did not need to?
The money is recovered by filing a Canadian return for the year, on which the employment income is reported, the treaty position claimed where it applies, and the amount withheld credited against whatever tax is actually due. The refund is the difference. The waiver exists to stop the withholding happening at all; once it has happened, the return is the route back. File it on time, because a late return carries its own cost: for the 2025 tax year, 5% of the balance owing plus 1% for each full month the return is outstanding, to a maximum of 12 months.
Is the Regulation 102 waiver itself subject to a late filing penalty?
No. The waiver is a request made in advance of a payroll payment rather than a return with a filing deadline, so there is no percentage penalty for sending it in late. The consequence of lateness is different in kind. Withholding continues on the Canadian payroll until a waiver covering those payments is in hand, so a late application means an employee is paid net of tax that may never have been due, and the money comes back later through a return. The penalties in this area attach to returns and to remittances, and those are the ones to keep on time.
My employer never remitted the Canadian withholding, am I liable?
The remittance obligation is the employer's, and the CRA pursues the employer for amounts that should have been withheld and paid over. Your own position is separate: you report the employment income where it is taxable, and you can only credit tax that was actually withheld and remitted under your name. That is the practical difficulty, because a credit claimed against a remittance that was never made will not hold. Ask the employer for the remittance record before you file, and if it does not exist, deal with the reporting on that footing rather than on an assumption.
Do I still have to file if the treaty exempts my Canadian salary?
Usually yes, and this is where people come unstuck. An exemption is a position that has to be claimed and supported, not a reason for silence. Where tax was withheld, the return is also the only way to get it back. Where nothing was withheld and nothing is owing, filing still puts the position on the record with the evidence attached, which is worth a great deal more than an empty file if the CRA asks about the assignment two years later. A nil position is a filed position. An unfiled year is an open question.
How long can the late filing penalty run on an unfiled Canadian return?
For the 2025 tax year the ordinary penalty is 5% of the balance owing plus 1% of that balance for each full month the return is late, and it stops accumulating at 12 months. It does not compound. A heavier version applies where the CRA has issued a demand to file and has charged a late-filing penalty in any of the three preceding tax years; that rate, again for the 2025 tax year, is 10% of the balance plus 2% per full month, to a maximum of 20 months. Both are computed on the balance owing, so a year with no balance leaves the percentage nothing to work on. Interest is separate and compounds daily.
Should I file the old years before or after asking for penalty relief?
Before, or at the same time. Relief is discretionary and decided on facts, and the fact that carries most weight is that the filings are already in. A request made while the years are still outstanding asks for forgiveness of a situation that is still running. Write it as an account rather than an apology: what happened, when the obligation became clear, and what was done once it did. For an employee whose employer had told them withholding was handled, that sequence of events is the substance of the request.
What is withholding tax?
Tax the payer deducts and remits before you receive the money, so collection does not depend on the recipient filing. On cross-border payments — dividends, interest, royalties, rent, pensions, fees for services — it is charged at a statutory rate on the gross amount, which a treaty often reduces. Because it is computed on gross rather than net, the amount withheld frequently exceeds the real tax, and an elective return or refund claim recovers the difference. See withholding review.
What is a section 217 return and should I file one?
An election available to a non-resident receiving certain Canadian pension and benefit payments. Normally those payments suffer flat withholding and that is the end of it. Under the election you file a Canadian return and are taxed on that income at graduated rates as though resident, which produces a refund of part of the withholding where the graduated result is lower — and no benefit where it is not. It is worth modelling before electing, because the choice is annual. See the section 217 return.
