2022-0943242E5 Regulation 105

Principal Issues: When CanCustomer pays USCo for the amounts invoiced by the latter, what amounts are subject to the withholding authorized by paragraph 153(1)(g) of the Income Tax Act (Act) and specified in section 105 of the Regulations (Regulation 105)? In particular, is the portion of the invoice that represents the fee that USCo has been charged by another Canadian resident, CanSub, for services the latter rendered in Canada to CanCustomer, subject to the withholding authorized by paragraph 153(1)(g) of the Act and Regulation 105?

Position: The fees paid by CanCustomer to USCo, to the extent such fees are in respect of services performed in Canada, are subject to withholding pursuant to paragraph 153(1)(g) of the Act and Regulation 105. Reimbursement by CanCustomer to USCo of travel costs and meals in respect of services performed in Canada would not be subject to withholding under paragraph 153(1)(g) and Regulation 105 provided CanCustomer agreed to reimburse the travel and meal costs.

Reasons: Weyerhaeuser Company Limited v The Queen 2007 TCC 65.

Author: Argento, Angelina
Section: 153(1)(g) and Regulation 105

XXXXXXXXXX                                                                     2022-094324

May 28, 2024

Dear XXXXXXXXXX:

Re: Subsection 105(1) of the Income Tax Regulations (Regulation 105) to the Income Tax Act (Act) and Requirement to withhold

We are writing in reply to our conversation in May 2024 regarding the effective date of our views in CRA Document 2022-094324 dated April 29, 2024 (2022-0943241E5). In particular, the following paragraph appears in 2022-0943241E5:

“This letter represents a change to CRA’s position that was made public on September 16, 2009 (i.e., 2008-029716). Reimbursement of subcontractor fees after June 30, 2024, are subject to Regulation 105 withholding. In addition, if taxpayers relied on 2008-029716, i.e., made payments potentially subject to Reg 105 withholding after September 16, 2009, and on or before June 30, 2024, provided taxpayers complied with the process specified in 2008-029716, none of interest, penalties and additional Reg 105 withholding will be assessed.”

The above noted paragraph in CRA Document 2022-094324 is replaced by the following, thereby changing the effective date from June 30, 2024, to September 30, 2024:

“Reimbursement of subcontractor fees after September 30, 2024, are subject to Regulation 105 withholding. In addition, if taxpayers relied on 2008-029716, i.e., made payments potentially subject to Reg 105 withholding after September 16, 2009, and on or before September 30, 2024, provided taxpayers complied with the process specified in 2008-029716, none of interest, penalties and additional Reg 105 withholding will be assessed.” (Emphasis Added).

Yours truly,

Angelina Argento
Section Manager
for Division Director
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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