14 April 2011 External T.I. 2010-0382921E5 - Individual Performing Services Outside of Canada

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: What are the tax implications to a Canadian University that pays a non-resident lecturer to teach a course outside of Canada.

Position: Question of fact.

Reasons: The nature of the relationship between the Canadian university and the non-resident lecturer is not known as no contract was provided. No withholding tax requirement applies to payment made to non residents in respect of services rendered outside of Canada.

XXXXXXXXXX
					2010-038292
					K. Podor

April 14, 2011

Dear XXXXXXXXXX :

Re: Non-Resident Performing Services Outside of Canada

This is in response to your email dated October 5, 2010, wherein you requested our opinion regarding payments made to a non-resident lecturer (the "Individual") who teaches a course offered outside Canada by an Institute established by a Canadian University (the "University"). Specifically, you have requested our opinion regarding:

• whether the payments are in the nature of payments made to an employee or an independent contractor; and,
• the withholding tax requirements for the payments.

A contract between the Individual and the University was not provided; however, you provided the following example:

• The Individual is a resident of India and does not enter Canada at any time.
• Lecturing services will be provided in South Africa.
• The period of service is less than 1 year. Accordingly, the individual is considered a "temporary hire" and does not qualify to be a member of the University's benefit plan.
• The Individual receives a living allowance for reimbursement of airfare (from India to South Africa and return), meals and accommodation during the period of service.

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. This Information Circular and other Canada Revenue Agency publications can be accessed on the Internet at http://www.cra-arc.gc.ca. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to offer the following general comments, which may be of assistance.

Comments:

It is a question of fact whether the nature of the relationship between the Individual and the University is that of an employee/employer or an independent contractor. Once a contract is obtained, any further questions regarding the status of this individual should be forwarded to the CPP/EI Eligibility Division at your local tax services office.

As the nature of the relationship cannot be determined, we provide general comments regarding withholding tax requirements under Canadian rules.

Amounts Paid to an Employee

Under subsection 153(1) of the Income Tax Act (the "Act"), an employer is required to deduct withholdings at source from remuneration that it pays to an employee who is a resident of Canada, regardless of where the services are rendered. Detailed rules are contained in Regulations 101 and 102 to the Act. These rules apply equally to resident and non-resident employers. In addition, withholdings are required from all remuneration paid to non-resident employees in respect of employment exercised in Canada.

Under Regulation 104, no amount need be deducted or withheld from remuneration paid to an employee who is neither employed nor resident in Canada; unless the exceptions in Regulation 104(2)(a) or (b) apply. Paragraph 104(2)(a) covers income from employment paid to a non-resident who has in the year or previous year ceased to be a resident in Canada. Paragraph 104(2)(b) covers income from employment attributable to duties of office or employment performed or to be performed in Canada by the non-resident.

Amounts Paid to an Independent Contractor

Regulation 105 of the Act subjects fees, commissions or other amounts paid to a non-resident of Canada to a 15% withholding tax if such payments are made in respect of services rendered in Canada. No amount need be deducted or withheld by a Canadian payor if the services are rendered outside of Canada.

Withholding Tax on Certain Payments to Non-Residents (Part XIII tax)

Section 212 of the Act requires a non-resident to pay Part XIII tax of 25% on certain types of income of a "passive" nature derived from within Canada. Section 215 requires the payor to withhold and remit the tax.

In this case, Part XIII tax does not apply as the Individual is earning income which is not considered income of a "passive" nature.

Canada-India Income Tax Convention

As your example discusses an Individual resident in India, we provide general comments in respect of the Canada-India Income Tax Convention.

An individual who provides services as an independent contractor is considered to have rendered "independent personal services" or "professional services" under Article 14 of the Canada-India Income Tax Convention. In some cases, Canada has the right to tax income derived by a resident of India in respect of professional services or other independent activities of a similar nature if the services are rendered in Canada. As the Individual does not enter Canada and the services are not rendered in Canada, the income will not be taxable in Canada.

If the Individual is considered an employee, Article 15 states that remuneration is taxed in Canada if the employment is derived by a resident of India in respect of employment exercised in Canada. In this case, the Individual is not exercising employment services in Canada. As a result, the income will not be taxable in Canada.

Conclusion:

We are unable to comment on the nature of the relationship between the University and the Individual.

As the Individual is not resident, not employed, and does not render services in Canada, there is no withholding tax required under Regulations 101, 102 and 105 to the Act. As well, the payments to the Individual are not subject to withholding tax pursuant to Part XIII of the Act. Therefore, the Canada Revenue Agency would not require the payor to report payments of this nature nor obtain a waiver.

We trust these comments are helpful.

Steve Fron, CA
Acting Manager
International and Trust Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch