If you are a non-resident rendering services in Canada, you will be subjected to a 15% withholding tax. By filing the ‘Regulation 105 Waiver’ you can reduce and or eliminate this.
Non residents of Canada who are rendering services in Canada, from consultants to athletes are subject to a 15% withholding tax. You can reduce or completely eliminate this 15% withholding tax by filing a regulation 105 waiver. This waiver is intended for self-employed individuals; consultants, athletes, and artists being the frequent ones. However, corporations, LLCs, partnerships, and joint ventures can also file for the regulation 105 waivers as well.
This waiver can be filed under two scenarios.
Scenario 1: The most common scenario is to file a treaty-based waiver, requesting relief under regulation 105. This is based on the absence of a fixed place or permanent establishment in Canada. Treaty-based waivers are granted if three specific criteria are met, which are based on:
The length of the contract, the income earned, other criteria
Scenario 2: This scenario involves income and expense based waivers. A non-resident who does not qualify for a treaty-based waiver can still request a reduction of taxes under regulation 105 by providing an estimated statement of income and expenses from the contract. A non-resident may claim expenses against Canadian sourced income with the resulting net income being taxed at regular Canadian tax rates, instead of 15%. If the estimated tax owing is less than 15%, then you as a non-resident will benefit!
In the case of either scenario, supporting documentation must be submitted with a waiver application. The waiver application should be filed at the CRA office, closest to where the services are being provided. The processing of the waiver can take up to 30 days. It is recommended that you file at least 30 days before your first payment, or 30 days before you start rendering services in Canada.
While you can file the waiver afterward, the reduced withholding tax rate will only apply once the waiver is actually approved. Filing a waiver application does not replace the need to file a tax return. Also, you as a non-resident rendering service in Canada must ask your customer for a T4A-NR slip. This slip will report the taxes deducted and the amount paid to you during the year.
So Here’s the Tip:
If you are a non-resident of Canada and expect to render services in Canada – file for a regulation 105 waiver!
The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.