25 January 2010 External T.I. 2009-0345151E5 - Directors' Fees Paid to Non-Residents

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.

Principal Issues: Are directors' fees subject to income tax where those fees are paid to a non-resident director, who performs all the related duties outside of Canada?

Position: The fees paid to non-resident directors, who manage and supervise the business and affairs of a corporation from outside of Canada are not subject to Canadian taxes.

Reasons: The fees paid to non-resident directors are only subject tax where the duties of office are performed in Canada.

XXXXXXXXXX 								2009-034515

January 25, 2010

Dear XXXXXXXXXX :

Re: Directors' Fees Paid to Non-Residents

This is further to your email communication of October 21, 2009, wherein you inquired about the income tax treatment of directors' fees paid to non-residents, who perform all the related work outside of Canada.

Where directors' fees are paid to a non-resident of Canada for work performed in Canada, withholding pursuant to paragraph 153(1)(a) of the Income Tax Act and Regulation 102 of the Income Tax Regulations is required on the same basis as a Canadian resident director. Director's fees paid to a non-resident director are reported on a T4 information slip. On the other hand, where a non-resident director does not attend any meeting or perform any other related functions in Canada, Regulation 104(2) provides that the remuneration attributable to the duties of office are not subject to deduction or withholding. If the services rendered are only partly performed in Canada, the employer is responsible for apportioning that part of the annual fee paid to the non-resident director for the services performed in Canada.

While non-resident directors, who manage and supervise the business and affairs of a corporation from outside of Canada are not subject to Canadian taxes, the taxation of directors who participate in meetings of directors or of a committee of directors by means of telephone or other communications facilities, which permit all persons participating in the meeting to hear and possibly see each other, is currently under study. Furthermore, in closing, it should be noted that the fees paid to the non-resident director should be proportionate to those that are paid to other arm's length directors of the corporation. Were such fees to be found to be disproportionate, they could be characterized as a "management fee" as defined in paragraph 212(1)(a) of the Act and subject to tax under Part XIII of the Act.

We trust these comments will be of assistance to you. Should you have any further queries or require additional information in this matter, please do not hesitate to contact me at 613-957-9767.

Yours truly,

B.J. Skulski
Manager
Insolvency and Administrative Law Section
Income Tax Rulings Directorate