TN 16 (11-96)
RS 02001.315 Exceptions to the General Coverage Rule - U.S. Canadian Agreement
A. The Detached Worker
A detached worker is one who is sent by his/her employer to the first country to work temporarily in the second country. Under the agreement, the worker who would otherwise be subject to dual coverage remains subject to the social security laws of the first country. For the “detached worker” rule to apply, the following conditions must be present:
The employment relationship must exist before the employee is transferred from the first country although the transfer need not be directly from the first country but may be via a third country; and
The employment in the second country must be expected to last no longer than 5 years. However, the two countries may agree to a longer period in an individual case (see B. below).
B. Extension of the 5-Year Period for Detached Workers
For the detached worker rule to apply, the employment in the second country must be expected to last for no longer than 5 years. Employment for a period in excess of 5 years may remain subject to the laws of the first country only if the two countries agree. If a transfer will extend beyond 5 years, the request for an extension must be made before the expiration of the 5 years. If it is expected before the transfer that the period will be in excess of 5 years, both the employer and employee should request an extension before the transfer takes place. If the transfer is from the United States, the request for an extension must be made to OIP. If the transfer is from Canada, the request must be made to the Source Deductions Division, Department of National Revenue - Taxation if the person will remain subject to coverage under the Canada Pension Plan or to the Direction des equivalences et de l'Administration des Ententes de securite sociale if the person will remain subject to coverage under the Quebec Pension Plan (see RS 02001.325). Neither country will grant an extension without the concurrence of the other
C. Self-Employed Persons
A United State or Canadian national or resident who is self-employed in either the United States of Canada and who is a resident of either country is subject to the coverage laws of the country in which he/she resides. All the self-employment income earned in the two countries is subject to coverage by the country of residence. In such cases, the self-employed person would have to report the income received in both countries to the country which provides the social security coverage. If any question on residence arises, determinations of residence will be made by the appropriate agency of the country in which the person claims residency.
If the person is a self-employed U.S. citizen who is a resident of Canada, he /she would be covered under the social security system of Canada. However, that would not relieve the person of the obligation to file a U.S. tax return. Rather, he/she would still have to file the return but would show on schedule SE that the earnings were exempt under the agreement and would attach a certificate of coverage under the Canadian system as proof of the exemption.
D. Government Employees
Both Canada and the U.S. are parties to the Vienna Conventions on Diplomatic Relations. The Conventions apply to members of the staff of a diplomatic or consular mission, including the diplomatic, consular, administration and technical staffs; dependents of members of those staffs; the domestic service staffs of the missions; and private servants employed by members of such missions.
The agreement provides that, in general, the categories of persons mentions in the Vienna Conventions will not be affected by the coverage provisions of the agreement. Persons mentioned in the conventions are exempt from social security coverage and contributions under the laws of the host country unless they specifically waive their immunity. Persons who waive their immunity or those not covered by the convention would be subject to the coverage provisions of the agreement.
Under the terms of the agreement, a person who is employed by the government of one country and is sent to the other country would be covered by the country which employs him or her. Persons who are hired locally to work for a government would generally be covered in the country in which the employment takes place. However, a person hired locally to work in Quebec for the U.S. Government would be subject to U.S. laws if that person was a U.S. national or if that person had participated in a U.S. Government retirement plan prior to the agreement and elects not to participate in the Quebec Pension Plan.