Jul 19, 2017
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“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.
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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.