30 May 2014 Internal T.I. 2014-0531371I7 - Reg. 105 withholding follow-up to 2014-052638

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: 1. Whether the Government of Canada must, in the absence of a tax withholding clause in a contract, withhold 15 percent of the amount to be paid to a non-resident contractor in respect of services provided in Canada pursuant to paragraph 153(1)(g) of the Act and subsection 105(1) of the Regulations.

Position: 1. Yes, provided no waiver is obtained.

Reasons: 1. Subsection 227(12) of the Act, provides that any agreement by a person on whom the Act imposes an obligation to deduct or withhold an amount, not to deduct or withhold that amount, is void.

XXXXXXXXXX
2014-053137
J. Ouimet, CPA, CA

May 30, 2014

Dear XXXXXXXXXX:

Subject: Regulation 105 Government Contracts - Withholding

We are writing in response to your email of May 14, 2014, requesting our views on whether the Government of Canada must, in the absence of any tax withholding clause in a government procurement contract, withhold 15 percent of the amount to be paid to a non-resident contractor for services provided in Canada under paragraph 153(1)(g) of the Income Tax Act (the "Act") and subsection 105(1) of the Income Tax Regulations (the "Regulations"). You have asked whether the absence of the tax clause would remove the obligation for a government entity to withhold tax on the amounts paid under the contract.

Our Comments

This technical interpretation provides general comments about the provisions of the Income Tax Act and the Income Tax Regulations. It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, Advance Income Tax Rulings.

This letter is a follow-up to our previous letter dated April 22, 2014, in respect of File # 2014-052638. In our previous letter we indicated that a government entity, such as XXXXXXXXXX, is subject to the withholding rules in paragraph 153(1)(g) of the Act and subsection 105(1) of the Regulations on amounts paid to a non-resident person for services rendered, or to be rendered, in Canada. We also stated that in certain circumstances, pursuant to subsection 153(1.1) of the Act, the Canada Revenue Agency may grant a waiver or reduction of the withholding otherwise required by subsection 153(1).

We note that the withholding obligation is imposed on the payer under the provisions of the Act and the Regulations and not by the contract or agreement. Furthermore, subsection 227(12) of the Act, provides that any agreement by a person on whom the Act imposes an obligation to deduct or withhold an amount, not to deduct or withhold that amount, is void.

Accordingly, even in situations where a contract does not contain a tax clause specifying the requirement of the payer to withhold the tax from the amount paid to a non-resident, the obligation to comply with the withholding requirements on amounts paid under the contract remains.

We trust our comments will be of assistance.

Yours truly,

Terry Young, CPA, CA
Manager, Administrative Law Section
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch