The non-resident withholding tax on payments for services is a tax withheld, by the payer, from payment made to non-residents of Canada for services rendered in Canada, other than employment situations.
The withholding tax is 15% of the gross amount of the payment and is required under Regulation 105 of the Income Tax Act. For example, payments under maintenance contracts would be subject to withholding if the vendor is required to come to Canada to provide maintenance services under the contract.
If services are performed in Canada and outside Canada withholding is required only on the services performed in Canada. A reasonable allocation should be made of the payment for services in Canada and outside Canada and should be expressed either within the contract or through related information and documentation. We should retain sufficient information and documentation to support the allocation. If an allocation is not made and documented we should withhold 15% of the gross amount of the payment for services.
Does this withholding tax apply to all non-residents?
No. Non-residents who are in regular and continuous employment in Canada are subject to employee payroll withholdings and are not liable for the 15% withholding tax.
Is the 15% withholding tax the final tax for non-residents?
The final tax for non-residents is based on the non-resident’s income net of deductible expenses during the taxation year. Non-residents are required to file a Canadian income tax return to calculate their tax liabilities and/or to obtain a refund of any withholding tax. If a non-resident can demonstrate that the withholding is more than his or her potential tax liability in Canada, the Canada Revenue Agency may waive or reduce the withholding tax. In 2018, the Canada Revenue Agency created a new simplified process for self-employed non-resident artists and athletes who provide services in Canada that allows for the waiver of the withholding tax with no advanced approval from the Canada Revenue Agency. Refer to the information under the question "How do I apply for a waiver or reduction of withholding?" for more details.
Who is involved in UBC’s accounting process for non-resident withholding tax?
Accounts payable and treasury accounting staff are responsible for reporting payments to non-residents in T4ANR and withholding tax if applicable.
Why must payments to non-residents be identified?
As required by Canada Revenue Agency, we are responsible for reporting payments to non-residents on a T4A-NR, and withholding the tax if applicable. T4A-NRs must be issued for payments to all non-residents for services performed in Canada, including individuals, corporations, partnerships, trusts and all other types of organizations, even if they are tax-exempt.
Who can process payment requisitions to non-residents?
Only central finance can process payment requisitions to non-residents due to the requirement of issuing Form T4A-NR and the requirement to withhold non-resident tax.
How much is withheld for services rendered in Canada?
15% must be withheld from the gross amount of the payment, excluding travel expenses and payment for the days when work was performed off-site (not in Canada).
Travel Time
Amounts paid for travel time are subject to 15% withholding.
How do I apply for a waiver or a reduction of withholding?
Non-residents who want to ask for a waiver or reduction of withholding have to file a waiver application to the Canada Revenue Agency tax services office in the area where their services are to be provided. The application should be submitted at least 30 days prior to the commencement of the services in Canada or 30 days prior to the initial payment for the related services. The Canada Revenue Agency waiver approval must accompany the requisition/invoice otherwise the payment will be subject to 15% withholding of amounts paid for services rendered in Canada.
In 2018, the Canada Revenue Agency created a new simplified process for self-employed non-resident artists and athletes who provide services in Canada. The total amount earned in Canada must not exceed CAD $15,000 in the calendar year, which includes performance fees, expenses paid or reimbursed and benefits such as bonuses, sponsorships, royalties, etc. The simplified process allows for the waiver of the withholding tax with no advanced approval from the Canada Revenue Agency. Details are provided at the Government of Canada website.
What about travel expenses?
Travel expenses for transportation, meals and accommodation paid to non-residents need to be included on the T4A-NR for statistical purposes.
What are the meal and accommodation expenses guidelines?
Use CRA’s per diem rules:
- Maximum of CAN$45 a day per person for meals (no withholding or receipts required).
- Amounts over CAN$45 are subject to withholding unless receipts are provided.
- For accommodation expenses, CRA’s maximum is CAN$100 a day per person (no withholding or receipts required).
- Amounts over CAN$100 are subject to withholding unless receipts are provided.
What information is required for T4A-NR reporting?
The following information is required from the non-resident payees:
- Legal name and home country address.
- Individual tax number (ITN) or social insurance number.
- Foreign social security number.
- Letter of approved tax waiver from CRA (if applicable).
- Number of days in Canada.
- List of work as either on-site or off-site (not in Canada).
Forms and additional information:
- Information Circular 75-6R2: Required withholding from amounts paid to non-residents performing services in Canada
- Regulation 105 Application Form
- Application for a CRA Individual Tax Number (ITN) for Non-residents
- Income tax rules that apply to non-residents of Canada