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 Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
TEI Conference
December 7, 1999
Question XX.
WITHHOLDING TAXES ON DIRECTOR'S FEES
TEI understands that Revenue Canada has issued a waiver of withholding under Regulation 105 on fees paid to some U.S. resident individuals who serve as members of a Canadian corporation's board of directors. We believe that Revenue Canada's waiver is based on its interpretation of Article XIV of the Canada-United States Tax Treaty that the individual's services as a member of a board of directors are of an "independent nature" as well as representations that the non-resident individual (1) works no more than 15 days in Canada, (2) maintains no fixed base in Canada, and (3) has no other sources of income from within Canada.
Would Revenue Canada confirm that fees paid for services rendered by members of a board of directors are treated as compensation for services of an independent nature for purposes of the Canada-United States Treaty ? Assuming a waiver of withholding is granted in such cases, what additional administrative requirements are imposed on the non-resident ? For example, is the non-resident individual required to file a federal tax return reporting the director's fees and then claim the benefit of the treaty exemption to reduce his or her tax liability to nil ?
CCRA's Position
Director's fees are considered to be salaries and wages both for the purposes of the Act and the Canada-U.S. Income Tax Convention (the "Convention"). Therefore, any waiver from withholding requirements issued with respect to such fees paid to a non-resident would be based on the provisions of Article XV (Dependent Personal Services) of the Convention, not Article XIV (Independent Personal Services).
It should be noted that because director's fees are considered salaries and wages for the purposes of the Act, they are technically subject to withholding at source under paragraph 153(1)(a) and section 102 of the Income Tax Regulations (the "Regulations"). Nevertheless, it is our 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, rather than the graduated rates specified in Regulation 102, if the director's fees are the only Canadian-source remuneration received by the non-resident (see Information Circular 75-6R in this regard). However, this administrative practice does not alter the fact that director's fees are salaries and wages for tax purposes and, therefore, subject to Article XV of the Convention.
Author: Brian Bloom
File: 993038
Date: November 22, 1999
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