Regulation 104

Subsection 104(2)

Administrative Policy

9 March 2017 External T.I. 2016-0677351E5 - Withholding on remuneration paid to a non-resident

non-resident director attending all Canadian board meetings by phone or internet is not subject to withholding

A corporation resident in Canada pays salary and director’s fees to a shareholder who is U.S.- resident individual, who is not in Canada in the course of performing his duties as employee and director, and participates in meetings from outside Canada using the telephone or internet. Is such employer required to withhold income tax at source? After noting that an “employee” includes a director, CRA stated:

This exception [in Reg. 104(2)] from withholding requirements will not apply…in respect of any remuneration reasonably attributable to the employee’s duties that are, or are to be, performed in Canada.

…[T]he individual in question would not attend any meetings or perform any functions in Canada. Where the participation in meetings would occur from outside of Canada using either the internet or the telephone, this would not, in our view, constitute the performance of services in Canada. As such…the corporation resident in Canada would not be required to make withholdings from the remuneration paid to the non-resident individual.

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 200 - Subsection 200(1) Reg. 104(2) exemption does not apply for T4 reporting purposes, subject to $500 exclusion 165

17 June 2008 Internal T.I. 2008-0276721I7 - Withholding requirements for non-resident employee

Canadian college with non-Treaty country "business" campus

A Canadian-resident non-profit corporation which was a post-secondary educational institution (the "College") established a campus in a country with which Canada does not have a Treaty and which does not impose any income tax on the employees of that campus. The College operates the campus as a business venture. Employees (none of whom perform any duties of employment in Canada) include former residents of Canada.

What are the withholding requirements on the College? The Directorate stated:

Since the payments to the Employees are not subject to tax in XX, the College is required to deduct or withhold, in accordance with sections 102 and 103 of the Regulations, from any payments made to its Employees except to the extent that the payments are described in subparagraph 115(2)(e)(i)… . [T]he College would not be required to deduct or withhold in respect of remuneration paid to such Employees where the remuneration relates to services rendered in the ordinary course of a business carried on by the College… . However, the College is required to make an information return in accordance with subsection 200(1) of the Regulations in respect of any payments described in subsection 153(1).

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 200 - Subsection 200(1) Canadian college with non-Treaty country "business" campus 101

7 December 2012 External T.I. 2012-0440411E5 F - Performing services in Canada

non-resident programmer who comes to Canada only occasionally and is connected to the Quebec server does not exercise a Canadian employment

A Quebec employer carries on an information systems business in Quebec using a server in Quebec and employs a non-resident programmer-analyst who carries out his duties from his home, but who is permanently linked to the server. He does not come to Canada in connection with his work except on rare occasions such as an annual reunion. CRA stated (TaxInterpretations translation):

...[A] person exercises the functions of his or her employment at the place where he or she is physically present in order to exercise the functions for which his or her remuneration is paid. Thus, when that place is situated outside Canada, that person will not generally be considered as being an employee in Canada, and on that basis no source deductions are required to be made.

14 November 2007 External T.I. 2007-0245631E5 F - Retenue à la source -employé à l'étranger

no source deductions required of Canadian employer for employee exercising duties in France

A French national was employed by a Canadian corporation since August 1998 and resided in Canada from that date until July 29, 2007, when he ceased to be a Canadian resident on his departure for France, where he continued to be employed by the Canadian corporation, Although the Canadian corporation did not have an establishment in France, it was required to be registered with the responsible French organizations and to pay employer's contributions in France.

After finding that s. 115(2)(c) did not apply to deem the employment after the departure to be exercised in Canada, CRA stated:

Consequently … if the non-resident person does not perform any of the employee’s employment duties in Canada, there would be no withholding tax with respect to the federal tax.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 115 - Subsection 115(2) - Paragraph 115(2)(c) employment for Canadian employer exercised in France and not exempt from French tax was not deemed to be exercised in Canada 152

"Non-Residents Performing Services in Canada - An Update on Withholding Tax and Permanent Establishment Issues, Toronto Centre CRA and Professionals Consultation Group Breakfast Seminar, June 15, 2005, Q.3 - Director's Fees"


Ron Choudhury, "An Overlooked Solution for Non-resident Employers", Taxation of Executive Compensation and Retirement (Federated Press), Vol. 24 No. 7, September 2015, p. 1643.

Allocation of payroll of non-resident employee performing in Canada (p. 1646)

[C]anadian payroll deductions will be required when a non-resident employee performs services in Canada for a non-resident employer and part of the remuneration is reasonably attributable to such Canadian services. Where an employee gets paid a specific salary or wage and performs part of his or her services in Canada, a part of such salary or wage should reasonably be attributable to the Canadian services as an employee cannot realistically be expected to be rendering services for free in Canada….

Advantages of secondment (employee loan) (p. 1647)

A secondment of employees is a potential solution to the tax and compliance issues noted above….

[There is] the ability of the non-resident employer to exempt itself from Canadian tax compliance obligations…[and] is able to ensure that it is not deemed to be carrying on business in Canada… .

Conditions for Secondment in IC 75-6R2 (p. 1647)

A number of conditions must be met in order to constitute an employee loan arrangement as a true secondment. These include:

  1. a written secondment agreement signed by all of the lending employer, the receiving employer and the employee;
  2. a detailed description of the legal terms of the secondment…;
  3. confirmation that the receiving employer is responsible for the employee's salary, benefits, incidental payments, and transfer costs; and
  4. the explicit lack of any element of profit associated with the charge-back to the receiving employer by the lending employer. [fn: 9: [IC] 75-6R2…at paragraph 37.]

…[E]mployers are often reluctant to include an employee in an agreement between affiliates… [A]n employment agreement between the receiving employer and the employee may also be an option if such agreement incorporates the terms of the secondment agreement between the employers. This is, however, not strictly according to CRA requirements… .

Potential for Canco to withhold and remit source deductions out of charge-back fee (p. 1647)

[T]he receiving employer must be responsible for the seconded employee's salary and benefits…[and] must also be responsible for remitting any source deductions in Canada… .

The receiving employer may not, however, have to actually pay the remuneration to the seconded employee. It may be possible to structure an arrangement where the lending employer charges the receiving employer for the employee's services and such charge-back is used to pay remuneration to the seconded employee. The receiving employer should ideally reduce the amount of the charge-back by the amount of source deductions required in Canada. As noted above, the charge-back must not have any profit associated with it. The CRA considers an administrative overhead charge of $250 per month, per employee to be a reasonable administrative overhead for this purpose.

No Canada-U.S. Treaty exemption (p. 1648)

[A] seconded employee will always have his or her remuneration paid by a Canadian resident and will therefore not be able to claim the benefits of Article XV(2)(b) in exempting himself or herself from Canadian tax on income earned for employment services rendered in Canada….

No discontinuance of loaned employee's benefit plans (p. 1648)

The secondment of an employee does not…reduce or restrict any benefits that the employee may have had access to while employed by the lending employer. In particular, the employee can remain enrolled in the lending employer's pension, health benefits, or equity compensation plan… However, the receiving employer must continue to remain liable for the employee's benefits while such employee is seconded.

Paragraph 104(2)(b)

Administrative Policy

3 May 2005 Internal T.I. 2005-0120711I7 F - Subsection 104(2) of Regulations

no Reg. imposes withholding on a retiring allowance paid to a non-resident

Would Reg.104(2)(b) apply to a lump sum payment of a retiring allowance by a Canadian employer to a former employee who is not resident in Canada at the time of payment, if the retiring allowance is attributable to employment duties that were performed by the person either (i) wholly outside Canada, or (ii) partly (1/3) in Canada and partly (2/3) outside Canada during a period when the person was at no time resident in Canada?

CRA responded:

Paragraph 104(2)(b) is intended to preserve the obligation to withhold on a payment to a non-resident person where the remuneration is reasonably attributable to the duties of an office or employment performed or to be performed in Canada by the non-resident person. This could be the case, for example, in respect of a payment resulting from an increase in remuneration with retroactive effect, after the non-resident person's employment has ceased.

There is no provision in … the Regulations requiring an employer to make deductions in respect of the lump sum payment of a retiring allowance to a non-resident person. Consequently, subsection 104(2) is not relevant in this situation.

However, paragraph 212(1)(j.1) could apply to the payment of a retiring allowance to a non-resident person.