23 March 2010 External T.I. 2010-0355591E5 - 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: Whether an amount is required to be withheld under Regulation 105

Position: Yes

Reasons: Regulation 105 applies to payments in respect of services rendered or to be rendered

2010-035559
XXXXXXXXXX Henry Leung
613-957-9232
March 23, 2010

Dear XXXXXXXXXX :

Re: Regulation 105 Withholding

This is in response to your e-mail dated January 26, 2010 concerning the application of section 105 of the Income Tax Regulations ("Regulations") to certain payments made to secure the services of a non-resident performer. Specifically, you asked us whether an amount paid, in the circumstances described below, would be treated in the same manner as an advance payment and subjected to withholding at the time of payment.

You describe a situation where, as part of a contractual arrangement to secure the services of a non-resident performer, an organization pays an amount to a non-resident lawyer or agent of the performer (referred to herein as the "third party"). The payment is usually made months in advance of the performance. The payment is normally tied to the completion of the contract and is released by the third party when the performer renders the performance(s) in Canada as required under the contract.

This Directorate does not provide assurances regarding the tax consequences relating to proposed transactions that involve specific taxpayers other than in the form of an advance income tax ruling. For more information about how to obtain a ruling, please refer to Information Circular 70-6R5, "Advance Income Tax Ruling", dated May 17, 2002. This Information Circular and other CRA publications can be accessed on the Internet at http://www.cra-arc.gc.ca. Where the particular transactions are complete, the inquiry should be addressed to the relevant tax services office, a list of which is available on the "Contact Us" page of the CRA website. We are, however, prepared to provide the following general comments.

Our Comments

Paragraph 153(1)(g) of the Income Tax Act (the "Act") provides, in part, as follows:

Every person paying at any time in a taxation year
...
(g) fees, commissions, or other amounts for services, other than amounts described in subsection 115(2.3) or 212(5.1),
...
shall deduct or withhold from the payment the amount determined in accordance with prescribed rules...

The prescribed rules are found in subsection 105(1) of the Regulations, which provides:

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 percent of such payment.

It is our view that the requirement to withhold or deduct pursuant to paragraph 153(1)(g) of the Act and subsection 105(1) of the Regulations applies to payments for services rendered, or to be rendered, in Canada. In this respect, we would consider the payment described in your email to be a payment in respect of services to be rendered in Canada and, therefore, the obligation to deduct or withhold arises at the time the payment is made to the third party. The amount deducted or withheld would be required to be remitted to the Receiver General, in accordance with subsection 108(1) of the Regulations, on or before the 15th day of the month following the month the relevant payments were made.

We trust our comments are of some assistance.

Yours truly,

Daryl Boychuk
Manager, International Section I
International and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch