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| Americans – Directors of Canadian Companies In Canada, directors’ fees are considered to be employment income. A non-resident director is taxable in Canada on the Canadian-source portion of his or her directors’ fees. The Canadian-source portion is calculated as follows. The attendance fees received are sourced based on where the meetings are held, which would presumably be in Canada, and the annual retainer fee is sourced based on the proportion of time spent working on corporate matters in Canada, versus outside Canada. For example, a director who spends 10 days a year preparing for board meetings, six of those days in Canada, would be taxable in Canada on 60% of his or her retainer fee. When the total Canadian-source fees earned in a given year come to less than C$10,000, they are generally exempt from Canadian tax under the Canada-U.S. treaty. Non-resident directors must file a Canadian individual income tax return reporting their directors’ fees and associated withholdings. This income must also be reported on their U.S. federal and state income tax returns; however, a foreign tax credit should be available to offset all or a portion of the tax paid. Company perspective. Effective January 1, 2004, Canadian directors’ fees paid to non-residents are subject to withholding tax at graduated rates and must be reported on a Form T4. Prior to 2004, the Canada Revenue Agency (CRA) permitted a 15% flat-rate withholding. The issue that arises for employers is whether the total fees paid, or only the Canadian-source portion of the fees, is to be reported. As only the Canadian-source portion is taxable to a non-resident, this amount can be reported, provided adequate records have been kept by the director to substantiate the proration. If adequate records have not been maintained, 100% of the fees paid should be reported.
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