12 November 2025 Internal T.I. 2025-1080641I7 - Regulation 105

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 payment for services rendered in Canada by a U.S. government department are subject to withholding under Regulation 105(1) and whether a T4A-NR must be issued. 2. Whether the answer to question 1 changes when the services are performed by contractors hired by the U.S. government department, assuming that the payment for such services is made to the U.S. government department. 3. Whether the rate of withholding in the described scenario is 15% or a reduced rate. 4. Whether a U.S. government department is able to apply for a treaty-based waiver.

Position: 1. Yes. 2. No. 3. 15% unless otherwise authorized by the CRA. 4. Possibly.

Reasons: 1. Paragraph 153(1)(g) and Regulation 105(1) require that a payer of amounts for services rendered by a non-resident in Canada withhold 15% of the amount and Regulation 200(1) requires the preparation of a T4A-NR. 2. As the payment is made to a non-resident for services rendered in Canada, it does not matter if the non-resident performs the services itself or hires a contractor to perform the services. 3. The rate of withholding is specified in Regulation 105(1) and can only be reduced through the issuance by the CRA of a waiver in accordance with subsection 153(1.1) or through a written authorization from the CRA in the case of sovereign immunity. 4. We do not have sufficient information to determine whether the Canada-U.S. treaty would provide relief but it is possible.

								November 12, 2025

XXXXXXXXXX							HEADQUARTERS
      							Income Tax Rulings
      							Directorate

K. Graham

								2025-108064

Income Tax Regulation 105

This is in reply to your email enquiry of October 17, 2025, regarding the application of section 105 of the Income Tax Regulations (“Regulation 105”) to services rendered in-person in Canada to the Department XXXXXXXXXX by foreign government entities, particularly those of the United States (“U.S.”).

In your initial request, you referred to services rendered to the XXXXXXXXXX by a particular U.S. government department but subsequently advised that you are seeking information regarding services provided by U.S. federal government departments in general. You have confirmed that none of the services at issue are performed on a ship or aircraft. You asked several questions, which are summarized as follows:

1. When services are rendered in-person and in Canada by a U.S. federal government department to XXXXXXXXXX:

a. Is the payment for those services subject to Regulation 105 withholding tax?

b. If yes, what is the rate of withholding?

c. Is a T4A-NR tax slip required to be issued?

2. Does the answer to question 1 change if the services are rendered by a contractor hired by the U.S. federal government department, assuming that the agreement and payment for those services is made to the U.S. government department?

3. Does the answer to question 1 change if the services are rendered entirely outside of Canada?

4. Is a U.S. federal government department able to apply for a treaty-based waiver in respect of services rendered to XXXXXXXXXX in Canada?

Please note that all legislative references in this letter are to the Income Tax Act, R.S.C. 1985, (5th Supp.) c.1, as amended (“Act”) or to the Income Tax Regulations (“Regulations”), unless otherwise stated.

Our Comments

Withholding and reporting requirements in respect of services rendered in Canada by a non-resident

Paragraph 153(1)(g) provides that every person paying, at any time in a taxation year, fees, commissions or other amounts for services (other than amounts described in subsection 115(2.3) or 212(5.1)) must deduct or withhold an amount from the payment in accordance with prescribed rules. The purpose of paragraph 153(1)(g) is to collect a reserve of tax that is applied towards a future income tax liability.

Pursuant to Regulation 105(1), every person paying to a non-resident person a fee, commission or other amount in respect of services rendered in Canada, of any nature whatever, shall deduct or withhold 15 per cent of such payment. The CRA takes a broad interpretation of the wording “in respect of”: a particular payment need not necessarily be paid only for services or, be paid to the person who performed the services in order for Regulation 105 to apply. If a payer fails to deduct and remit an amount required by paragraph 153(1)(g) and Regulation 105, the payer may be held liable for the whole amount together with any interest and penalties.

A service is generally considered to be rendered in Canada when the individuals performing the service are physically present in Canada. Therefore, where a U.S. federal government department renders services in-person and in Canada to XXXXXXXXXX, Regulation 105 would apply to require withholding from the payment for those services at a rate of 15 per cent. This would also be the case where such services in Canada are performed by a contractor hired by the U.S. federal government department to XXXXXXXXXX assuming that the agreement for, and payment for, those services are between XXXXXXXXXX and that U.S. federal government department.

In general, where services are rendered entirely outside of Canada to XXXXXXXXXX, XXXXXXXXXX is not obligated to withhold an amount under Regulation 105. If a contractual arrangement between XXXXXXXXXX and a U.S. federal government department includes services that will be rendered both inside and outside of Canada, a reasonable allocation of the payment for such services will be required to determine the portion that will be subject to Regulation 105.

Every person who makes a payment described in paragraph 153(1)(g) and Regulation 105 is required to prepare and issue a T4A-NR slip and file a T4A-NR Information Return, whether or not a waiver or reduction of withholding was issued to the non-resident recipient of the payment.

Waivers or reductions in Regulation 105 withholding

Subsection 153(1.1) permits the Minister to determine a lesser amount of withholding under subsection 153(1) in cases of undue hardship. Where the amount of withholding otherwise required is in excess of a payee’s Canadian tax liability, that is normally evidence of undue hardship.

The CRA has two types of waiver procedures: treaty-based waivers, and income and expense waivers. A treaty-based waiver may be granted where a tax treaty between Canada and the non-resident’s country of residence provides relief from Canadian tax in respect of income earned from services provided in Canada. We do not have sufficient information to determine whether the tax treaty between Canada and the U.S. would provide such relief where a U.S. government department renders services in Canada to XXXXXXXXXX but in most circumstances we can envision, a treaty-based exemption appears to be likely.

If a U.S. federal government department will be rendering services in Canada to XXXXXXXXXX, and the tax treaty between Canada and the U.S. does provide relief from Canadian tax, the U.S. federal government department can apply for a treaty-based waiver. If they do not qualify for a treaty-based waiver, they may apply for an income and expense waiver. Further information on CRA’s waiver procedures can be found in Information Circular IC75-6R2, Required Withholding from Amounts Paid to Non-Residents Providing Services in Canada.

While your enquiry relates specifically to the provision of services by a non-resident of Canada, we note that certain other payments (for example, management fees or rents) made to a non-resident of Canada may require withholding under other provisions of the Act. For more information, you may wish to refer to Guide T4061, NR4 – Non-Resident Tax Withholding, Remitting and Reporting.

Unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency’s electronic library. After a 90-day waiting period, a severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. You may request an extension of this 90-day period. The severing process removes all content that is not subject to disclosure, including information that could reveal the identity of a taxpayer. Such a taxpayer may ask for a version that has been severed using the Privacy Act criteria, which does not remove taxpayer identity. You can request this by e-mailing us at: ITRACCESSG@cra-arc.gc.ca. A copy will be sent to you for delivery to the taxpayer.

Yours truly,

Angelina Argento
Section Manager
for Division Director
International Division
Income Tax Rulings Directorate
Legislation Policy and Regulatory Affairs Branch