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: Whether tax is required to be withheld on deposits paid to non-resident artist's agents. Where an overpayment occurs, how is a refund obtained?
Position: General comments. Yes. Any refund is obtained following an assessment of the non-resident's Canadian income tax return.
Reasons: Regulation 105 withholding is a payment on account of the non-resident's potential Part I tax. The onus is on the non-resident to file a return and demonstrate to the CRA that a refund is justified.
December 6, 2011
Dear XXXXXXXXXX :
Re: Withholding Tax on Services Provided by Non-resident Artists
This is in response to your enquiry regarding whether the XXXXXXXXXX ("the Town") is obligated under the Income Tax Act ("the Act") to withhold tax on a deposit paid to a non-resident agent in respect of an artist who is a resident of the United States. The artist is not an employee of the Town. The artist will perform in stage productions at the XXXXXXXXXX , which is owned and operated by the Town. You also enquired about the process for obtaining a refund of tax withheld from a deposit payment if, subsequently, a show is cancelled or a waiver is obtained.
Every payer who makes a payment of fees, commissions, or other amounts to a non-resident person in respect of services provided in Canada must withhold and remit 15% from payments paid in accordance with the requirements under paragraph 153(1)(g) of the Act and section 105 of the Regulations to the Act (Regulation 105).
In Nowegijick vs. The Queen, 83 DTC 5041, the Supreme Court of Canada discussed the meaning of the words "in respect of" and found them to have "the widest possible scope. They import such meanings as 'in relation to', 'with reference to' or 'in connection with'. The phrase in respect of is probably the widest of any expression intended to convey some connection between two related subject matters". Accordingly, it is our view that paragraph 153(1)(g) of the ITA and Regulation 105, read together, require a Canadian payer to withhold tax on deposits paid to a non-resident agent in respect of services provided in Canada by a non-resident artist. Paragraph 12 of Information Circular (IC) 75-6R2 - Required Withholding from Amounts Paid to Non-Residents Providing Services in Canada, clarifies that Regulation 105 withholding is applicable to advance payments made in respect of services to be performed in Canada by a non-resident.
The Canada Revenue Agency's (CRA) International and Non-resident Taxes web site at http://www.cra-arc.gc.ca/tx/nnrsdnts/menu-eng.html contains links to the following information:
- The only alternative to the remitting requirements is for the non-resident to obtain a waiver, or a reduction in the withholding tax. The onus is on the non-resident to demonstrate to the CRA that a waiver or reduction of the amount to be withheld is justified. If the payer has not obtained written notification from the CRA, the required withholding tax is mandatory. Failure to deduct or remit an amount under Regulation 105 may result in an assessment of the outstanding amount, plus interest and penalty, pursuant to section 227 of the Act.
- The required withholding tax is considered a payment on account of the non-resident's overall tax liability to Canada. In the event that withholding taxes have been overpaid, a refund may be obtained by the non-resident after the assessment of their Canadian income tax return.
Additional information about the withholding, remitting, and reporting responsibilities relating to non-residents who provide services in Canada, can be found in IC 75-6R2. You may find paragraphs 10 to 12 and 41 to 63 useful. To assist you, we point out the following specific comments:
- Paragraph 42 states "[w]hether or not a waiver or reduction of withholding was issued to a non-resident ..., a T4A-NR Information Return (T4A-NR Slips and Summary Form), reporting all amounts paid to non-residents for services provided in Canada (other than employment services) must be filed with the CRA ...."
- Paragraph 53 confirms that the granting of a waiver or reduction of withholding on amounts subject to Regulation 105 does not affect the requirement of the non-resident providing services in Canada to file a Canadian income tax return.
- Paragraph 61 confirms that where a waiver is granted, it will apply to payments made after the waiver was granted.
We trust these comments will be of assistance to you.
International and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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