Subsection 105(1)
Cases
FMC Technologies Co. v. MNR, 2008 DTC 6560, 2008 FC 871
The non-resident parent of the taxpayer entered into a subcontract with the taxpayer for the performance of the in-Canada portion of its performance obligations under a contract with a Canadian company ("Petro-Canada") and also assigned the portion of the contractual payments due to it (representing the value of the in-Canada portion of the work provided by the taxpayer) to the taxpayer. These arrangements did not detract from the earning by the parent of all the fees, so that Regulation 105 withholding was applicable to the full amount of the fees earned by the parent under the contract including the portion it had assigned to the taxpayer.
Even if no Regulation 105 withholding had been applicable, the taxpayer would have had no right to recover the amounts from CRA. Instead it would have been open to the non-resident parent to seek a return of the amounts withheld by Petro-Canada by filing Canadian income tax returns reflecting the monies received from Petro-Canada and deducting the amounts paid to the taxpayer.
See Also
Stora Enso Beteiligungun GmbH v. The Queen, 2009 DTC 891, 2009 TCC 282
A German corporation ("SEPPA") engaged a Swedish consulting firm ("McKinsey") to do consulting work for a Canadian affiliate of SEPPA ("SEPH"). SEPPA paid the fee of McKinsey (which included a somewhat arbitrary mark-up of exactly 10% to cover McKinsey's expenses) without Regulation 105 withholding, and was reimbursed by SEPH. SEPH remitted 15% of the amount of its reimbursement to the federal government as Regulation 105 withholding.
Boyle, J. found that SEPPA could not be assessed (except as described below) by CRA for failure to withhold under Regulation 105 given that the Regulation 105 tax had been remitted by SEPH. Boyle, J. noted (at para. 22) that s. 153(1) of the Act is clear that the person paying for services of a non-resident is to "remit that amount to the Receiver General on account of the payee's tax for the year", and that it "would defy logic to conclude that the payee for whose credit the remitted amount is held by the CRA is an intermediary in the payment chain [i.e., SEPPA] and not the non-resident service provider [i.e. McKinsey]." Here McKinsey was the only non-resident providing any services in Canada.
As there was a withholding tax remittance on account of the services of McKinsey, this in effect was an additional payment to McKinsey that was subject to Regulation 105 withholding (together with a penalty under s. 227(8)).
Although a reimbursement of McKinsey for actual out-of-pocket expenses would not have been subject to Regulation 105 withholding, here the exact 10% addition for expenses instead represented an adjustment to a single price for an all-inclusive bundled contract.
Hamilton v. The Queen, 2007 DTC 121, 2006 TCC 603
In rejecting an argument of the taxpayer (who had been assessed vicariously under s. 227.1 in respect of the failure of a corporation of which he was a director to withhold on all amounts paid to non-residents of Canada performing work for it) that a number of the non-resident payees were not liable for income tax as a substantive matter, Bowie J. stated (at p. 123):
"In effect, I am asked to assess each of these 33 individuals and determine the refunds to which they would have been entitled had they filed returns in Canada. That would be impossible in the evidentiary vacuum that exists in this case. ... The words of section 153 of the Act and section 105 of the Income Tax Regulations required the company to withhold and to remit to the Receiver General 15% of the amounts paid, unless it could be shown that some or all of the payments were salary or wages, or otherwise fell within the definition of 'remuneration' ... ."
Ogden Palladium Services (Canada) Inc. v. The Queen, 2001 DTC 345 (TCC), briefly aff'd 2002 DTC 7378 (FCA)
A corporation resident in the United States ("Marco") obtained a licence of stadium facilities from the taxpayers and contracted with them for the provision of related services (e.g., ticket sales and the sale of food, beverages and souvenirs) in connection with the production of a figure skating show in Canada by Marco. Lamarre T.C.J. referred to the finding in Taylor v. MNR, [1988] 2 CTC 2227, at 2234 (TCC) that "the term 'services' refers not to the final product or end result of a transaction, but rather to the process by which this is achieved" and found (at p. 350) that the producer (Marco), being the one who administers and supervises the making of the show that will be presented to the public, therefore is part of the process by which the show can be brought about. On this basis, and given the scope of the phrase "in respect of", the remittance to Marco by the taxpayers of the net proceeds of the show were subject to withholding under Regulation 105.
Lamarre T.C.J. also agreed with the position of the Minister that the obligation to withhold under Regulation 105 existed even if the non-resident was exempt under the Canada-U.S. Income Tax Convention (a claim which, in this case, was unsupported by the evidence).
Administrative Policy
9 September 2015 T.I. 2014-0563611E5 F - Call Centre - Location of the services performed
A Canadian company outsourced some of its activities to a non-resident enterprise, so that the non-resident now operates a call centre which fields and handles calls received from the mostly-Canadian customers of the Canadian company. Is the call centre rendering services in Canada? After noting that the services were "using a telecommunication system as the means of transmission," CRA responded (TaxInterpretations translation):
In the case where such services are rendered by means of a call centre established abroad, the CRA is generally of the view that the services would not be rendered in Canada. Accordingly, no withholding at source would be made…[under] subsection 105(1)… .
12 February 2014 T.I. 2013-0505511E5 - Cancellation fees paid to a non-resident artist
A fee is paid to a U.S. musician for the cancellation of a scheduled Canadian performance. There may have been rehearsals in Canada. CRA stated:
Preparation, rehearsals, and training are considered normal activities of an artist or athlete ("performer")... . Where a performer receives a payment in respect of a performance to be done in Canada, notwithstanding that the payment may be in respect of the performance itself or for its preparation, rehearsals, or training, the requirement to withhold under section 105 of the Regulations still exists, unless a treaty based waiver is obtained.
18 May 2012 IFA Roundtable Q. , 2012-0444101C6
Respecting whether CRA requires every non-resident partner of a US partnership which has been subject to Reg. 105 withholding to file a Canadian tax return to claim a refund of a share of the withholding, CRA stated:
Non-resident partners of a partnership are required to file a Canadian income tax return to calculate their tax liability and to obtain a refund. There is currently no administrative procedure whereby a refund can be issued in respect of a particular non-resident partners share of the Regulation 105 withholding without that partner filing a tax return. However, where a partnership can demonstrate, based on treaty protection, that the normally required withholding is in excess of the ultimate tax liability, the partnership can make an application for a treaty-based waiver of Regulation 105 withholding on behalf of the partners.
28 November 2011 November CTF Roundtable Q. , 2011-0426591C6
A US partnership (USFirm) subcontracts part of its contract, to perform consulting services to an arm's length Canadian customer (Canco), to an arm's-length Canadian professional firm (CanFirm) and Reg. 105 withholding is deducted by Canco on payments made to USFirm. In response to queries as to whether CRA require every partner of USFirm that is allocated income pertaining to the activities in Canada to file a Canadian tax return to claim its share of the withholding, and whether CRA requires every partner that is a corporation to file a Canadian corporate income tax return under the "carrying on business in Canada" criteria, CRA stated:
There is currently no administrative procedure whereby a refund can be issued in respect of a particular non-resident partner's share of the Regulation 105 withholding without that partner filing a tax return. However, where a partnership can demonstrate, based on treaty protection, that the normally required withholding is in excess of the ultimate tax liability, the partnership can make an application for a treaty-based waiver of Regulation 105 withholding on behalf of the partnership.
Corporate members of a partnership must file an income tax return pursuant to paragraph clause 150(1)(a)(i)(B) if they carry on business in Canada (i.e. including through a partnership).
6 December 2011 T.I. 2011-0405561E5
a Canadian town will pay a deposit to the non-resident agent for a non-resident artist who will perform in a stage production operated by the town.
In light of the broad meaning of "in respect of," the town will be required to withhold from the deposit unless it receives a written waiver from CRA. If the show is cancelled, a refund may be obtained by the non-resident artist only after the assessment of the Canadian income tax return for that year.
28 November 2010 CTF Roundtable Q. , 2010-0387091C6
Suppose a US-resident taxpayer provides services in Canada for 130 days between 1 October to 28 February, does not anticipate providing further services in Canada, and obtains regulation 105 waivers for services provided in that period. Nevertheless, the taxpayer returns to Canada to provide services for 60 days between 1 July to 31 August the same year. This would trigger Art. V(9)(a) of the Canada-US Convention retroactively to impute a permanent establishment. The taxpayer would thus be late in filing a T1 in respect of income from Canada for 1 October-31 December.
CRA stated that it "may" apply relief provisions on the penalties and accumulated interest for 1 October-31 December - "Taxpayers will have to advise the CRA of their circumstances, and the CRA will review each request on the basis of the information provided."
CRA does not expect retroactive remittances for the period where the waivers were valid, but withholdings must commence starting 1 July. The taxpayer is obligated to file T1 forms and pay the resulting Canadian income tax liability from the 1 October-28 February period.
13 July 2001 Comfort Letter No. 20010713
After noting, with respect to s. 212(13.3) that "the payor's reasonable belief, or a presumption based on the payee's address, will suffice to relieve the payor from possible liability", Finance indicated that "a similar test could be applied for purposes of an exemption from the withholding requirements of Regulation 105." The letter previously noted that "although there is no rule deeming the bank to be resident in Canada, many of the considerations that led to such a rule in the context of Part XIII tax are relevant here as well: the bank's business is carried on in Canada, and a person making a payment to the bank cannot always be presumed to know the details of the bank's situation."
1999 TEI Roundtable Q. , 1999-0007810
Although directors fees are salaries and wages for tax purposes and, therefore, are subject to Article XV of the Canada-U.S. Convention rather than Article XIV, it is RC's administrative practice to permit fees paid to a non-resident director for services rendered in Canada to be withheld at the flat rate of 15% specified in Regulation 105.
7 August 1998 Discussion Paper on Proposed Changes to Revenue Canada's Guidelines for Treaty-Based Waivers of Regulation 105 Withholding (Draft)
22 March 1995 T.I. 950463 (C.T.O. "Withholding Tax for Non-Resident Commuters (HAA 8019-1)")
"If an individual comes to Canada and exercises his duties of employment for a Canadian company and the costs, whether directly or indirectly, are borne by the Canadian company, the presumption is that the Canadian company is an employer and the individual is taxed in Canada unless there are other facts which dictate the contrary ... . In such a case, the provisions of subsection 105(1) ... would not be applicable ... ."
8 July 1991 T.I. (Tax Window, No. 5, p. 22, ¶1339)
Any GST payable on the fee paid to the non-resident is not subject to the withholding tax.
6 April 1990 T.I. (September 1990 Access Letter, ¶1441)
Where the service of a non-resident is the providing of information or advice by way of a telephone or electronic mail hotline and where the non-resident so providing such information or advice is not in Canada, the service will not be considered to be rendered in Canada. The shipping of materials from the United States and the giving of maintenance instructions via a telephone line also would be exempt on the same grounds.
1990 Answers Given by Scarborough District Office (May 1990 Access Letter, ¶1200, Q. 6)
A Canadian corporation contracts for repair services to be received from the Canadian subsidiary of a U.S. corporation. The U.S. corporation sends one of its employees, a U.S. resident, to perform the work, and the Canadian customer receives and pays an invoice from the Canadian subsidiary. The Canadian customer is not required to withhold tax on the payments made to the Canadian subsidiary. However, the Canadian subsidiary would be required to withhold 15% when paying its U.S. parent for the services performed by the non-resident employee.
12 November 1986 Press Release together with attachment entitled "Revised Administrative Policy - Non-Resident Withholding Taxes - Re: Services Rendered in Canada"
85 C.R. - Q.54
Where Regulation 105 and Article XVII of the 1980 U.S. Convention are both applicable, the payer is required to withhold 10% on the first $5,000 and 15% on the balance. However, the Canadian payer's obligation to withhold is not affected by the possibility that a nonresident payee may not be subject to tax on the amount of the payments.
81 C.R. - Q.48
RC will accept any reasonable apportionment as to the portion of a single payment that relates to services performed in Canada.
IC75-6R2 "Required Withholding from Amounts Paid to Non-Resident Persons Performing Services in Canada"
Articles
Elaine Marchand, Florie Pellerin-Catellier, "Foreign Service Providers in Canada and Regulation 105", 21 Canadian Current Tax, Vol. 21, No. 2, November 2010, p. 21.
Jules Lewy, "Withholding Requirements for Non-Resident Service Providers in Canada", Tax Notes International, 7 June 2004, p. 1079.
Shannon Baker, Dale Meister, "Non-Residents Rendering Services In Canada: Regulation 105 and Other Issues", International Tax Planning, 1999 Canadian Tax Journal, Vol. 47, No. 5, p. 1321.
Albert Baker, Mark Briggs, "Revenue Canada Provides Increased Guidance on Waivers from Withholding under Regulation 105", International Tax Planning, Vol. VIII, No. 4, p. 596.
Murray, "Computer Software: Canadian Cross-Border Issues", 1993 Conference Report, C. 27
Discussion (at pp. 26-27) of Revenue Canada requirements in order to give a waiver of withholding tax.
Scheuermann, "Income and Commodity Tax Aspects of Acquiring and Exploiting Technology", 1991 Conference Report, c. 45.
Bacal, Lewin, "The Taxation in Canada of Non-resident Performing Artists and Behind-the-Camera Personnel", Canadian Tax Journal, November-December 1986, p. 1287
Includes discussion of changing RC position on whether expense reimbursements are included in the services referred to in Regulation 105(1).