Budget 2024: Expanded Relief for Non-Resident Service Providers

Budget 2024: Expanded Relief for Non-Resident Service Providers

Budget 2024 proposes to expand the circumstances under which the Canada Revenue Agency (the “CRA”) may grant relief in respect of withholdings otherwise required in respect of payments made to non-residents that render services in Canada.

Under the Income Tax Act (Canada) (the “Tax Act”) and the corresponding regulations (the “Regulations”), amounts paid to a non-resident service provider in respect of services rendered in Canada are, in the absence of a valid, limited purpose CRA-issued waiver, subject to a withholding of 15%, which the payor is required to remit to the CRA (the “Reg 105 Withholding”).[1] Payments made in respect of “services rendered in Canada” can include payments in relation to construction projects, installation projects, manufacturing and/or processing, oil and gas operations, athletic events, and seminar or conference presentations.

The Reg 105 Withholding regime is designed to ensure that taxes potentially payable by a non-resident service provider are remitted by the payor of the service fees on behalf of the non-resident.

Budget 2024 proposes to allow the CRA to waive the Reg 105 Withholding requirement in respect of fees payable to a non-resident service provider over a specified period of time if (i) the non-resident service provider would not be subject to Canadian tax based on the application of a tax treaty between Canada and the service provider’s country of residence, or (ii) the income from the rendering of the particular services is exempt from taxation on account of the services relating to international shipping or the operation of an aircraft in international traffic (the “New Budget Waiver”).

The expanded waiver entitlements contemplated in Budget 2024 represent a welcome development for many non-resident service providers.  However, uncertainties with the proposed New Budget Waiver rules remain.  For instance, it is unclear how long any New Budget Waiver may be valid and how non-resident service providers will apply for a New Budget Waiver.  The proposed enabling legislation also gives the CRA discretion to impose additional preconditions to the issuance of a New Budget Waiver.

The ability of the CRA to issue New Budget Waivers will come into effect when the applicable enabling legislation receives Royal Assent.

[1] An additional 9% Quebec provincial withholding requirement generally applies to payments made to non-residents for services rendered in the Province of Quebec.

by  Todd Miller

A Cautionary Note

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2024