DFK Tax Newsletter
Paying a Non-Resident to Provide Services in Canada? Beware of Regulation 105
Under Regulation 105 of the Income Tax Act (Canada), every person (including residents and non-residents of Canada, who are either individuals, corporations, or trusts) is required to:
- Withhold 15% of any payment to a non-resident person for a fee, commission or other amount in respect of services rendered in Canada. This includes advance payments made in respect of services to be performed in Canada by a non-resident. This withholding obligation does not apply in respect of remuneration of an office or employment (where Regulation 102 would apply);
- Remit amounts withheld to the CRA by the 15th of the month following the month in which the payment is made to the non-resident; and
- Prepare and file a T4A-NR Information Return, reporting all amounts paid to non-residents for services provided in Canada (other than employment services), whether or not a waiver or reduction of withholdings was received from the CRA. The deadline to file is the last day of February in the year following the year in which the payments were made.
Some examples of activities subject to Regulation 105 withholdings include: Construction projects, installation projects, manufacturing and/or processing, entertainment, athletic events, consulting, legal and accounting services, engineering, lecturing and seminar/conference presentations.
There is no time limit for the CRA to reassess in respect of failure to withhold.
In order for the withholding tax to be reduced or eliminated, there are 2 waiver options.
Option A: Treaty-Based Waiver of Withholdings:
Service provider resident in a country that has a tax treaty with Canada that exempts them from Canadian tax on their business income earned in Canada, can apply for a waiver of withholding tax by completing and filing Regulation 105 Waiver Application – Treaty-Based Wavier with the CRA.
Under the Canada / US Tax Treaty, US residents are exempt from Canadian tax on net income earned from business activities carried on in Canada unless the net income is derived from a permanent establishment in Canada. Therefore, a ‘treaty-based waiver’ will be granted if the non-resident person does not have a permanent establishment in Canada.
Option B: Income and Expense Waiver of Withholdings:
If the non-resident service provider has a permanent establishment in Canada, but their ultimate tax liability in Canada would be less than the normal required withholding (15% of gross income), they can file the Regulation 105 Waiver Application – Income and Expense Waiver to have Canadian tax withheld at the marginal tax rates applied on their net income (after deducting their expenses incurred to earn the income in Canada).
Self employed non-resident athletes or artists who earn more than $15,000 CAD of gross revenue from business activities carried on in Canada are subject to Canadian tax even if they do not have a permanent establishment in Canada. They would be required to file the Regulation 105 Waiver Application – Income and Expense Waiver if they wanted to reduce the amount of Canadian tax withholding.
General Rules on Regulation 105:
For both the Treaty-Based and the Income and Expense Waivers, a Regulation 105 Waiver Application must be submitted by the service provider with the CRA 30 days before either the services begin in Canada or the initial payment. Each non-resident service provider would need to separately file a Regulation 105 Waiver Application. The payor / purchaser would need a copy of the Regulation 105 Waiver issued from the CRA for each non-resident service provider in order to reduce the Canadian income tax withholding from the payment for services. The service provider will need to apply for a Canadian individual tax number (individuals) or a Canadian Business Number (corporations) along with the Regulation 105 Wavier Application. The payor will still be required to file a T4A-NR Information Return, reporting all amounts paid to the service provider, and the service provider will still be required to file a Canadian personal or corporate tax return reporting their business income.
The CRA held an external consultation in the summer of 2025 regarding the Regulation 105 waiver process and intends to review the feedback and implement measures to make the process simpler and more efficient starting in late spring of 2026.
* There are separate rule for actors / actresses working in Canada which are outside the scope of this article.
* The province of Quebec has their own separate rules for withholding which are outside the scope of this article.
