The Joint Committee comments on the CRA administration of Reg. 105

The principal recommendations of the Joint Committee regarding the CRA administration of Reg. 105 were:

Withholding on subcontractor reimbursements

That CRA depart from 2024-1038271C6 and confirm that Reg. 105, when interpreted in light of Weyerhaeuser (finding that Reg. 105 only applies to payments having the character of income, as contrasted, for instance, to the reimbursement of clearly delineated subcontractor fees) does not require withholding on the payment to a non-resident of amounts that are a reimbursement for sub-contractor fees paid by the non-resident where (i) the contract governing the provision of services permits sub-contracting, and (ii) the contract clearly identifies the reimbursement of fees as a separate form of payment that is distinct from the payment of fees to the service provider.

Collection of Canadian receivables by non-resident

That - having regard to the situation where a Canadian services provider sells the receivables generated from its services business to a non-resident purchaser such as a securitization vehicle (while perhaps remaining as the receivables’ servicer) - CRA acknowledge that Reg. 105, properly interpreted, does not require withholding on the payments by the trade debtors to the non-resident purchaser of the receivables, provided that the services provider is a Canadian resident.

Revision of Treaty-based waiver Guidelines to reflect actual treaty exemptions

That the CRA Guidelines for Treaty-Based Waivers Involving Regulation 105 Withholding be revised so as to not exclude non-residents from accessing this waiver program in circumstances where they can demonstrate the availability of a treaty exemption (and this also should be so if the proposed new waiver powers are enacted):

Exceeding 180 or 240-day thresholds

The guidelines should allow more flexibility in granting waivers to non-residents with a demonstrable entitlement to a treaty exemption even if they exceed the 180 day (if their presence in Canada is “non-recurring”) or 240 day (if “recurring”) thresholds in the Guidelines.

Non-relevant presence of subcontractor in Canada

Given that there are circumstances where a subcontractor's presence in Canada cannot reasonably be relevant to the determination of the existence of a permanent establishment (PE) of the non-resident contractor in Canada, the Guidelines should allow a non-resident to demonstrate that time spent in Canada by a subcontractor should not be counted as time spent by the non-resident itself in Canada.

Repetitive presence

The Guidelines should allow a non-resident to demonstrate that it has no Canadian PE despite repetitive presence in Canada.

Accommodation of no PE in Canada where 100% Canadian subcontracting

Given that the Guidelines require that activities of sub-contractors, whether Canadian resident or not, fall within the Guidelines, so that, for instance, non-residents with no PE in Canada because they sub-contracted all of the services rendered in Canada to Canadian residents, could be effectively precluded from demonstrating such treaty exemption, the Guidelines should permit such a non-resident to access the waiver program, regardless of the activities in Canada of the Canadian resident subcontractor (assuming, as is likely, that the non-resident can demonstrate that it does not have a Canadian PE).

Neal Armstrong. Summary of Joint Committee, "Section 105 of the Regulations to the Income Tax Act", 10 March 2025 under s. 105(1).