16.16.1 Every payer, including a non-resident payer, who makes a payment to a non-resident of Canada for services provided in Canada must withhold and remit an amount in accordance with the requirements under the Income Tax Act of Canada (the Act).
16.16.2 Generally, the rules for the computation of income from a business apply equally to residents and non-residents. Any exceptions are clearly expressed in the Actor in the Income Tax Regulations. Under Part I of the Act, a non-resident is subject to tax on the income earned in Canada that is attributable to services provided.
16.16.3 Paragraph 153(1)(g) of the Act and subsection 105(1) of the Regulations (Regulation 105) are the authority to withhold tax on fees, commissions, and other amounts paid to non-residents of Canada, other than employees, for services rendered in Canada. The rate of withholding is 15% of the gross amount paid.
16.16.4 The remitting requirements for the Regulation 105 withholding tax are outlined under subsection 108(1) of the Regulations (Regulation 108).Regulation 108 requires that the withholding taxes are to be remitted by the 15th of the month following the month in which the amounts were deducted or withheld.
16.16.5 The only alternative to the requirements of Regulation 108 is for the non-resident to obtain a waiver, or a reduction in the withholding tax. If the payer has not obtained written notification from Canada Customs and Revenue Agency, the required withholding tax is mandatory. Failure to deduct or remit an amount under Regulation 105 may result in an assessment of the outstanding amount, plus interest and penalty, pursuant to section 227 of the Act.
16.16.6 All payers, resident or non-resident, must report to Canada Customs and Revenue Agency payments to non-resident persons for services provided in Canada.
1. These payments are to be reported on a T4A-NR Supplementary slip, Statement of Fees, Commissions, or Other Amounts Paid to Non-Residents for Services Rendered in Canada. This information slip is to be completed and issued by the payer(s), regardless of the amount paid or the taxes withheld.
2. All T4A-NR Supplementary slips must be sent to Canada Customs and Revenue Agency by the payer together with a T4A-NR Summary, Summary of Fees, Commissions, or Other Amounts Paid to Non-Residents for Services Rendered in Canada, on or before, the last day of February of the year following the year in which the income was paid. Provide the non-resident recipient with Copy 3 of this slip by the same date as noted above.
16.16.7 The required withholding tax is considered a payment on account of the non-resident's overall tax liability to Canada. It is not Canada Customs and Revenue Agency's intent to inconvenience non-residents who may not be taxable in Canada. One of the Department's responsibilities is to ensure that all clients are treated in a consistent and fair manner.
16.16.8 Where a non-resident can adequately demonstrate that the withholding tax normally required is in excess of their ultimate Canadian tax liability, the Department may reduce or waive the withholding tax accordingly. A waiver or reduction of the withholding requirements is considered pursuant to the application of subsection 153(1.1) of the Act, "Undue Hardship." The onus is on the non-resident to demonstrate to the Department that a waiver or a reduction of the amount required to be withheld is justified. This may be based on the application of the treaty of their country of residence or through an estimated income and expense statement.
16.16.9 A waiver application should be submitted to the tax services office that serves the area where the services are to be provided. The Department requires30 days to process requests for waivers based on treaty protection and 10 days for requests based on an estimated income and expense statement. This allows all non-residents the opportunity to have their tax affairs reviewed before the services are performed. A waiver application must contain sufficient documentation and information to establish if a waiver is justified.
16.16.10 Additional information about the withholding, remitting, and reporting responsibilities relating to non-residents who provide services in Canada is available from any of Canada Customs and Revenue Agency's tax services offices.