24 October 2001 External T.I. 2001-0103555 - Withholding Commission Payment Non-resident

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

PRINCIPAL ISSUE:

Whether the taxpayer should withhold from commissions paid to non-residents?

Position:

Taxpayer should withhold or obtain a Treaty-Based Waiver.

Reasons:

Subparagraph 153(1)(g) of the Income Tax Act and subsection 105(1) of the Regulations

XXXXXXXXXX 						2001-010355
							Gilles L. Gosselin
October 24, 2001

Dear XXXXXXXXXX:

Re: Subsection 105(1) of the Income Tax Regulations (the "Regulations")

We are writing in response to your letter dated September 19, 2001 wherein you request our view regarding whether the Income Tax Act (the "Act") requires you to withhold any amount from commissions paid by you to non-residents.

The facts, as we understand them from your letter, are that you have been approached to act as a "paymaster" for financial commissions earned for international day trading. This requires you to pay to non-resident individuals or companies commissions earned from international day trading where the work to complete the transaction and the actual transaction are completed outside of Canada.

Generally, subparagraph 153(1)(g) of the Act states that "every person paying at any time in a taxation year fees, commissions or other amounts for services ... shall deduct or withhold from the payment the amount determined in accordance with prescribed rules ...", and subsection 105(1) of the Regulations states that "every person paying to a non-resident person a fee, commission, or other amount in respect of services rendered in Canada, of any nature whatever, shall deduct or withhold fifteen per cent of such payment."

Recently, in Ogden Palladium Services (Canada) Inc. et al v. The Queen 2001 DTC 345 [2001] 2 CTC 2404, the Tax Court of Canada decided that subsection 105(1) of the Regulations applied where the non-resident receiving the payment did not itself perform any services in Canada. More specifically, the Court found that subsection 105(1) of the Regulations applied to a payment by a resident owner of a stadium to a non-resident producer of a production at the stadium, who did not provide any services in Canada, because the payment was "in respect of services" provided in Canada by the artists performing in the production. The Court considered the meaning of subparagraph 153(1)(g) of the Act and subsection 105(1) of the Regulations and established the following principles, at paragraphs 23, 24, and paragraphs 20 to 22, respectively: (1) Subsection 105(1) of the Regulations does not specify who has to render services in Canada and as a result the subsection applies as long as services are rendered in Canada and a payment is made to a non-resident "in respect of" those services; (2) Section 105 of the Regulations should be interpreted broadly because the words "in respect of" found in subsection 105(1) of the Regulations have been established by the Supreme Court of Canada in Nowegijick v. The Queen, [1983] 2 S.C.R. 428 to be "probably the widest of any expression intended to convey some connection between two related subject matters"; and (3) whether or not a non-resident is liable for tax in Canada is not relevant in determining whether a person must withhold pursuant to subsection 105(1) of the Regulations.

Accordingly, any connection between services rendered in Canada and a commission paid by a person to a non-resident may be sufficient to trigger the withholding requirement in subsection 105(1) of the Regulations. For this reason, and because your letter is not clear regarding the details of the connections between the payment of the commission and any services that may be rendered in Canada by you, in your capacity as "paymaster", or any non-resident, it is our view that you should either withhold fifteen per cent from any payment of a commission to any non-resident or attempt to obtain a Treaty-Based Waiver. The International Tax Directorate of the Canada Customs and Revenue Agency (the "CCRA") has prepared "Guidelines for Treaty-Based Waivers Involving Regulation 105 Withholding", a copy of which is attached for your assistance.

If you do withhold any amounts from any payment of a commission to a non-resident, please be aware that: (1) subsection 108(1) of the Regulations states that amounts deducted or withheld pursuant to subparagraph 153(1)(g) of the Act are to be remitted to the Receiver General on or before the 15th day of the month following the month of the payment; and (2) the payments are to be reported to the CCRA on a T4A-NR Supplementary slip, Statement of Fees, Commissions, or Other Amounts Paid to Non-Residents for Services Rendered in Canada and a T4A-NR Summary.

Finally, it should be noted that an amount withheld in accordance with subsection 105(1) of the Regulations is not a definitive tax and in the event that the non-resident taxpayer is not liable for tax under Part I of the Act, the amount withheld by you and remitted to the Receiver General may be recovered by the non-resident taxpayer by filing an income tax return in Canada.

The above comments are provided in accordance with the practice outlined in paragraph 22 of Information Circular 70-6R4 and we trust that they will be of assistance to you.

Yours truly,

for Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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