This section contains information on withholding tax on payments to non-residents for rents, royalties or similar payments and for the use of a motion picture film.
What is the non-resident withholding tax on rents, royalties or similar payments?
A tax withheld, by the payer, from rents, royalties and similar payments made to non-residents of Canada for the use of or the right to use in Canada any property, invention, trade-name, patent, trade-mark, design or model, plan, secret formula, process or other thing, as well as a payment for the right to use a motion picture film.
How much is the tax?
The withholding tax is 25% of the gross amount of the payment and is required under Part XIII of the Income Tax Act unless reduced under a tax treaty.
Are there any exclusions?
Withholding is excluded under Part XIII on a royalty or similar payment in respect of a copyright in respect of the production or reproduction of any literary, dramatic, musical or artistic work, although tax reporting of such amounts is required on a NR4. Such excluded payments include a payment for computer software. In addition, payments to residents of countries with which Canada has a tax treaty are often subject to a lower rate of tax and in some cases the withholding tax may be eliminated. For example, payments made for the use of software or payments for the use of, or the right to use, any patent or any information concerning industrial, commercial or scientific experience are not subject to withholding tax under the Canada-US Tax Convention or the Canada-UK Income Tax Convention. The withholding tax on other types of royalties are limited to 10% under the Canada-US Tax Convention and the Canada-UK Income Tax Convention.
How do I reduce or eliminate the rate of withholding?
When relying on a treaty for a reduction or elimination of the rate of withholding, the payee should complete and provide us Form NR301 declaring eligibility for treaty benefits otherwise we should withhold at a rate of 25%.
How is it administered?
We are required to fill out an NR4 slip for every non-resident to whom we paid or credited an amount under Part XIII of the Income Tax Act even if we are not required to deduct any tax due to an exemption under the Income Tax Act or a bilateral tax treaty.
Forms and additional information:
- IC 76-12R6: Applicable rate of part XIII tax on amounts paid or credited to persons in countries with which Canada has a tax convention.
- NR301: Declaration of eligibility for benefits (reduced tax) under a tax treaty for a non-resident person.
- NR4: Non-Resident Tax Withholding, Remitting, and Reporting.