Tax Tip[] Withholding Tax

Withholding Tax on Remuneration Paid to Non-Residents of Canada

“Without planning, non-resident employers could be subject to unexpected taxes.”

Regulation 102 of the Income Tax Act applies to withholding taxes for employees who provide services in Canada. The requirement to withhold taxes is not limited to Canadian employers only. Instead, the withholding tax rules apply to any employer who has an employee who provides services in Canada. The withholding tax requirements are the same as for any Canadian employee who works in Canada.

There are no minimum payment exceptions for the withholding taxes. As well, there could be Canada Pension Plan and Employment Insurance withholding requirements. The CRA is willing to issue a waiver to reduce or eliminate withholding taxes under certain circumstances. Having said that, a waiver will only reduce or eliminate withholding taxes after the waiver has been issued. There is no specific form for a waiver.Instead, it is a written request. If the employee has already started earning income in Canada, and a waiver is received at a later point in time, then the withholding tax requirement still applies to that period before the waiver was received.

Even if a waiver has been granted, employers are still required to prepare and file a T4 employment income summary for all amounts paid to non-resident employees.

Penalty and interest provisions can still apply to the payor for the taxes that should have been withheld even though there may be no ultimate liability for taxes due to a treaty.

Non-resident employers are well advised to plan ahead so as to minimize their exposure on withholding taxes.


TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.

The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.

Withholding Tax Rates to Non-Resident Trusts & Their Beneficiaries

“The CRA has revised their policy on payments to non-resident trusts.”

In 1987, the CRA issued a Technical Interpretation dealing with the withholding tax rate on interest and dividends paid to non-resident trusts whose beneficiaries were residents of Canada, the United Kingdom and the United States. The CRA took the position that the withholding tax rate on the payments to non-resident trusts should be based on the residence of the beneficiaries. Since Canada had tax treaties with the United Kingdom and the United States, the reduced withholding tax rate was allowed.

In a recent Technical Interpretation (2004-0099401I7), the CRA changed its position. The CRA now states that the maximum withholding tax rate of 25% must be applied if the recipient trust is resident in a non-treaty country. The withholding tax rate will depend on whether there is a treaty with the trust’s country of residence. This could be a significant cost in certain situations.

The CRA did state, however, that it may “look through” a trust that could be considered to be acting as an agent for the beneficiaries. This would appear to be (for example) where the trust is there for creditor proofing purposes. It appears that most trusts will now be subject to the withholding tax rate applicable to the residence of the trust.


TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.

The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.

Withholding Tax For Services Done – By Non-Residents in Canada

“A 15% withholding tax may be payable for services rendered in Canada..”

Regulation 105 states that every person that pays a “fee, commission or other amount in respect of services rendered in Canada” to a non-resident shall deduct or withhold 15% of such payment unless it is “remuneration.” Remuneration is generally defined as salaries, wages or pension-type income. Remuneration income is generally subject to regular Canadian withholding taxes.

This means that any time a non-resident performs a service in Canada, there should be a 15% withholding tax remitted to the CRA. There are, however, other rules which state that in certain circumstances a non-resident is not taxable in Canada on some of the activities that he/she may carry on. For example, according to most treaties that Canada has with other countries, a non-resident is not taxable in Canada on business activities if the non-resident does not have a permanent establishment in Canada. This means that if a non-resident comes to Canada and provides services and does not have a permanent place of operations, they are not taxable in Canada on an income tax basis. Regulation 105 states that even though they are not taxable overall, a 15% withholding tax must be remitted. The non-resident would recover the 15% withholding tax by filing an income tax return showing the withholding tax as a payment made on their account and requesting a refund. In this way, the CRA has the ability to determine if that non-resident is actually taxable in Canada or not.

There is a mechanism to ask for a waiver of any Regulation 105 withholding taxes. The CRA has made a number of pronouncements stating that there are fewer and fewer circumstances where they will provide a waiver of the 15% withholding tax.

It is important to note that it is the liability of the Canadian payor to withhold the 15% tax.

In summary, if a non-resident is providing services in Canada, there should be a 15% withholding tax for which the non-resident can file for a refund at a later point in time.


TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.

The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.