Regulation 105 and Waivers

30 août 2013

( Disponible en anglais seulement )

This posting was authored by Graham Purse, an Associate in the Regina office of Miller Thomson LLP.


Every person paying to a non-resident person a fee, commission, or other amount in respect of services rendered in Canada must withhold 15% of such payment in accordance with Regulation 105(1) of the Income Tax Regulations (the “Regulations”).[1] Any withholdings are to be remitted by the 15th day of the month following the month in which payment is made. The purpose of Regulation 105 is to provide security for tax that may later be assessed against the non-resident person.

Where it can be demonstrated that there is little likelihood of Canadian income taxes owing, a waiver of the Regulation 105 withholding tax can, in some cases, be obtained. This waiver is granted by applying to Canada Revenue Agency (“CRA”) in advance using Form R105. For those that seek to have the withholding waived, an application should be delivered to the tax services office 30 days before commencing services in Canada or 30 days before the first payment is made for those services. Waivers have two bases: those based on treaty and those based on income and expenses. More detail about waivers is set out below.

Obligations on the Payer

Payers are required to complete a T4A-NR, which is a statement of fees, commissions, or other amounts paid to non-residents for services rendered in Canada. A T4A-NR is required for each non-resident person paid, and each payee is to be provided with the appropriate slip copies.


Payers who fail to withhold without authorization from the CRA may be assessed tax, penalty, and interest. Failure to deduct or remit an amount under Regulation 105 may result in an assessment of the outstanding amount, plus interest and penalty, pursuant to section 227 of the Act. There is no statutory limitation period for Regulation 105 assessments.


There are three statutory exceptions to the withholding requirement. First, it does not apply to a payment described in the definition “remuneration” in Regulation 100(1). Remuneration is defined to include payments of salary, wages, commissions, gratuities, superannuation, retirement allowance, death benefit and a number of other types of benefits. Second, the withholding does not apply to payments made to registered non-resident insurers. Third, the withholding does not apply to payments made to an authorized foreign bank in respect of its Canadian banking business.

It is worth noting that withholding applies to fees and commissions. Thus, payments that are not in the nature of income to the recipient are not subject to withholding. By way of illustration, travel costs, telephone, faxing, postage charges, photocopying, and amounts paid to reimburse contractor for their disbursements are not subject to withholding. However, out-of-pocket expenses such as flat-rate surcharges that do not arise from actual receipts will still require a withholding.

There are other instances in which no withholding is necessary. Non-resident employees working outside Canada are not affected.[2] Also, in general, no amount needs to be withheld from a non-resident for services rendered outside Canada.[3]

Who May Apply for a Waiver

CRA has expressly listed persons who may apply for a waiver:

  • Non-resident persons who will be providing services in Canada;
  • United States artists and athletes providing services in Canada who will earn less than $15,000 CDN for the year, including reimbursable expenses or expenses paid on their behalf;
  • non-U.S. artists and athletes who will be providing services in Canada; and
  • non-resident applying for a waiver on their statement of income and expenses.

Notably, CRA has taken the position that the non-resident or the non-resident’s authorized representative can make the waiver application. Where the payer is not the authorized representative of the applicant, CRA is opposed to allowing the payer to make the application.[4]

Application Process for a Waiver

Where no exception applies, the alternative is to obtain a waiver or a reduction in the withholding tax. The onus is on the non-resident to demonstrate to CRA that a waiver or reduction of the amount to be withheld is justified. If the payer has not obtained written notification from CRA, the required withholding tax is mandatory.

A person can apply for a full or partial waiver, utilizing Form R105. Form R105 asks a variety of questions, such as whether the payer and payee are at arm’s length, the total amount of fees to be paid (and any potential bonuses), types of equipment the payee will be bringing into Canada (and the rental amount paid), the possibility of contract renewal, et cetera.

Once complete, the Form can be mailed or faxed, along with supporting documentation, to the CRA tax services office that serves the area where the applicant’s services will be provided. In cases where the services are to be performed in a number of locations in Canada, the complete waiver application may be presented to any Tax Service Office that serves one of the locations where the services are to be provided.

There is a separate form, Form R107, for services that relate to the film industry.

Treaty Based Waivers

In order to obtain a treaty-based waiver, an applicant must establish his or her residency in a treaty country and his or her entitlement to treaty benefits. There are three bases for obtaining a treaty-based waiver:[5] (a) where a non-resident independent individual earns less than $5,000 CAD for the current calendar year (including expenses reimbursed); (b) where a non-resident person’s presence in Canada is not “recurring” and where he or she provides services for less than 180 days under the current engagement; or (c) where a non-resident person whose presence is “recurring”, but whose cumulative presence is less than 240 days during “the period”, and less than 180 days under the current engagement. The application for a treaty-based waiver is found at item 25 of Form R105.

For tests (b) and (c), the withholding will normally be waived unless the facts fit an exception category. CRA’s “Guidelines for Treaty-Based Waivers Involving Regulation 105 Withholding” provides a number of exceptions where waiver will not be allowed. These include residents of non-treaty countries who earn more than $5,000 CAD in the calendar year; residents of countries whose treaty with Canada specifies a deemed permanent establishment; U.S. resident individual artistes or athletes earning in excess of CAN$15,000 gross fees in Canada; non-resident artistes or athletes, resident in a treaty country, other than the US; services of a repetitive nature, such as airshow participants, rodeo riders, combine harvesting, etc., where services performed by the non-resident person(s) are performed in the same or similar locations; and a number of other exceptions.

Income and Expense Based Waivers

Waivers can also be obtained based on income and expenses. The income and expense waiver provides for net income being subjected to tax at graduated rates rather than the 15% withholding on gross revenue provided for in Regulation 105. Where such an application is made, as the CRA notes in IC 75-6R2, the CRA will consider the reasonableness of the expenses claimed and determine whether a reduction will be applied. Expenses such as professional service fees, accommodations, meals, travel, and equipment rentals are likely valid expenses, providing adequate documentation is provided.

Case Law

Canadian courts have considered Regulation 105 on a number of occasions.

Big Bad Voodoo Daddy v Canada[6]

Big Bad Voodoo involves the reassessment of a US jazz group which, operating as an LLC, gave several performances in Canada. This case highlights the importance of properly documenting transactions where waivers are at issue. The case focussed on the deductibility of monies paid by the LLC to its partners (being the band members) and the lack of supporting documentation for the claims of salary expenses. On account of a lack of supporting documentation, Justice Favreau held the salary component of the expenses claimed in could not be deducted in computing the income of the Appellant.

Justice Favreau noted that the purposes the Regulation 105 waiver is to authorize a Canadian taxpayer who is about to make a payment to a non-resident for services provided in Canada to not withhold the 15% tax on the fees payable to the non-resident. He described the operation of the waiver thusly:[7]

“As the waiver request is based on an estimation of income versus expenses directly related to services provided in Canada, any changes to the contracted fees or period of service invalidate the waiver. In such a case, the Canadian taxpayer is then responsible for the 15% withholding at source on the gross amount of any payments to the non-resident unless the non-resident files another waiver request with the CRA. The Canadian taxpayer is required to prepare a T4A-NR slip for each non-resident paid and to give to each one a copy of the slip. The T4A-NR will show the fees paid and taxes deducted for the non-resident.”

Weyerhaeuser Company Limited v The Queen[8]

In Weyerhauser, the Company made payments totalling $14,313,726.30 to non-resident service providers, and withheld 15% from payments the Company considered to have been made to non-residents for services rendered in Canada. In all, Weyerhauser withheld some $1,551,341, but the minster reassessed, suggesting the company should have withheld $2,101,088.

Weyerhauser’s process was that, where an estimate of fees was provided by non-resident service providers, the company generally relied on the estimate and withheld a 15% portion of the fee estimated by the service provider.[9] Weyerhauser would not withhold fees for services rendered outside of Canada, reimbursements for out-of pocket costs such as travel time and expenses. The lesson from this case is as follows: payments for reimbursable expenses for such things as travel costs, telephone, fax and postage charges, photocopying and the like were not in the nature of income to recipients and so they were not subject to the requirement to withhold. Thus, while withholding was required for fees, it was not required for expense reimbursements.

Stora Enso Benteiligungen GmbH v R[10]

In Stora, a Swedish company (McKinsey) provided services in Canada for Stora Enso Port Hawkesbury Limited (SEPHL), a Canadian corporation and owner and operator of a pulp and paper mill in Nova Scotia.[11] It was held that, as CRA had received 15% withholding from one of the Stora Enso companies paying for McKinsey’s services, it could not also look to collect the withholding again from another company in the chain of payments.[12]

Ogden Palladium Services (Canada) Inc. v The Queen[13]

In, Ogden Palladium, the promoter of the 1996 Canon Elvis Tour of Champions (featuring Elvis Stojko) was found to be rendering services in Canada. What made this decision so interesting is the fact that, although Marco (the promoter) did not provide any services in Canada, the legislation does not specify who must render the services in Canada; all that mattered was that the services were rendered and a payment was made to a non-resident in respect of those services.[14] Although the appellants had received a waiver in the previous year, it was held that obtaining a waiver in the previous year is not a valid defence. The appellants had a duty to ensure that they had fulfilled their obligations under the ITA.

If you would like more information on this article, please contact the author of this posting, Graham Purse at (306) 347-8338 or


[1] C.R.C., c. 945.

[2] Technical Interpretation 2007-0245631E5.

[3] Technical Interpretation 2010-0382921E5, 2011-0397511E5.

[4] CCRA’s Comments on Administration of Regulation 105 published as CCH Federal Income Tax Topics Report #1575 dated May 16, 2002.

[5] International Tax Directorate Publications, 1999-1 — Guidelines for Treaty-Based Waivers Involving Regulation 105 Withholding.

[6] 2011 TCC 226, 2011 D.T.C. 1173 [“Big Bad Voodoo”].

[7] Ibid., per Favreau J at para 25.

[8] 2007 TCC 65 [“Weyerhauser”].

[9] Ibid., per Bowie J at para 4.

[10] 2009 TCC 282 [“Stora”].

[11] Ibid., per Boyle J at para 5.

[12] Ibid., per Boyle J at para 19.

[13] 55 DTC 345, [2001] 2 CTC 2404 [“Ogden”].

[14] [23]  There now remains the main question as to whether the payment made by the appellants to Marco was for or in respect of services rendered in Canada. In the affirmative, the appellants had an obligation under the Act to withhold an amount at source. The appellants put great emphasis on the matter of who performed services for whom in the present case. They stressed the fact that Marco did not provide any services in Canada. I agree with counsel for the respondent, however, that the legislation does not specify who has to render the services in Canada. I am of the view that, as long as services are rendered, section 105 of the Regulations applies if a payment is made to a non-resident in respect of those services.

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