CRA finds that no source deductions are required on payments to non-resident employees of third parties

On a literal reading, the source deduction Regulations apply to any payment of remuneration made by an employer to an employee, and are not restricted to remuneration paid to the employer’s own employees (see also Philp).

CRA stated that "that no withholding tax is required… where there is no employer/employee relationship."   Accordingly, payments made by a Canadian manufacturer directly to the non-resident employees of non-resident dealers, based on the volume of sales warranties that were sold on customer purchases through those employees of the manufactured products, were not subject to Canadian source deductions (although T4A slips would be required to be issued).  The payments also were not subject to withholding under s. 212(1)(d)(iii) given the exclusion therein for "a payment made for services performed in connection with the sale of property or the negotiation of a contract."

Neal Armstrong.  Summary of 24 September 2015 T.I. 2013-0495611E5 under Reg. 100(1) – remuneration and s. 212(1)(d)(iii).