Every payer, including a non-resident payer, who makes a payment to a non-resident
of Canada for services provided in Canada must withhold and remit an amount in accordance with the requirements under the Canadian Income Tax Act (the Act).

Generally, the rules for the computation of income from a business apply equally to residents and non-residents. Any exceptions are clearly expressed in the Act or in the Income Tax regulations (the Regulations). Under Part I of the Act, a non-resident is subject to tax on income that is attributable to services provided in Canada.

Paragraph 153(1)(g) of the Act and subsection 105(1) of the Regulations (Regulation 105) are the authority to withhold tax on fees, commissions, and other amounts paid to non-residents of Canada, other than employees, for services rendered in Canada. The rate of withholding is 15% of the gross amount paid.

The remitting requirements for the Regulation 105 withholding tax are outlined under subsection 108(1) of the Regulations (Regulation 108). Regulation 108 requires that the withholding taxes are to be remitted by the 15th of the month following the month in which the amounts were deducted or withheld.

The only alternative to the requirements of Regulation 108 is for the non-resident to obtain a waiver, or a reduction in the withholding tax. If the payer has not obtained written notification from the Canada Revenue Agency (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.

All payers, resident or non-resident, must report to the CRA the payments to
non-resident persons for services provided in Canada.

• These payments are to be reported on a T4A-NR slip. This slip is to be completed and issued by the payer(s), regardless of the amount paid or the taxes withheld.
• All T4A-NR slips must be sent to the CRA by the payer together with a
  T4A-NR Summary, by the last day of February of the year following the year in which the income was paid. Give the non-resident recipient a copy of this slip by the same date.

The required withholding tax is considered a payment on account of the non-resident's overall tax liability to Canada. It is not the CRA's intent to inconvenience non-residents who may not be taxable in Canada.

Where a non-resident can adequately demonstrate that the withholding tax normally required is in excess of their ultimate Canadian tax liability, the CRA may reduce or waive the withholding tax accordingly. A waiver or reduction of the withholding requirements is considered pursuant to the application of subsection 153(1.1) of the Act, "undue hardship." The onus is on the non-resident to demonstrate to the CRA that a waiver or a reduction of the amount required to be withheld is justified. This may be based on the application of the treaty of their country of residence or through an estimated income and expense statement.

See Guidelines for Treaty Based Waivers Involving Regulation 105 Withholding for more information.

The goals of the guidelines are to ensure that administrative relief is applied fairly
and equitably; to provide adequate protection to the fisc while not imposing an undue administrative burden upon non-residents performing services in Canada, or upon Canadian payors; and to streamline the withholding tax and waiver processes (for example, eliminating unnecessary withholding).

For information about the withholding, remitting, and reporting responsibilities relating to non-residents who provide services in Canada, contact your Tax services offices.