Why have I been asked by CRA to remit tax for a non-resident company I use?

By Randall Orser | Personal Income Tax

Tax concept TNThis kind of remittance usually occurs when you’re dealing with a franchisor to which you’re paying royalties or other monies, and the franchisor does not have a headquarters in Canada. However, any non-resident to whom you pay for services rendered in Canada may require you to withhold monies for taxes.

Every payer, including a non-resident payer, who makes a payment to a non-resident of Canada for services provided in Canada must withhold and remit an amount in accordance with the requirements under the Canadian Income Tax Act.

What Does The Act Mean By ‘Services Provided In Canada’?

Of course, the government doesn’t really define what they mean by the above term. Many of us have used outsourced talent in other countries to do certain things, from web development to consulting. In the end you have to use your best judgment as to whether or not the services you’re using fit into this term.

From what I found it appears Canada Revenue Agency is only concerned when it’s someone who comes into Canada to perform services. Or, it’s something that is an on-going process, such as the royalties mentioned earlier.

Some services this situation definitely applies would be speakers, actors, and other who come to Canada to perform. Or, you’re the director of a company in Canada and are paid directors fees.

Does this apply to a company you pay for hosting, or you’re doing ads on Facebook, etc.? Generally no. Many of these companies do have a presence in Canada, so you wouldn’t have to take off tax.

What Do I Have To Deduct And How Do I Remit It?

Whenever you pay someone who’s a non-resident, you must deduct 15% of the amount and remit that to the government. For example, you’re paying John Doe $5,000 for services provided, you must deduct $750.00 and remit that to the government.

You have to remit your non-resident tax deductions so that we receive them on or before the 15th day of the month following the month the amount was paid or credited to the non-resident. We consider the payment to be received on the date the payment is received at your Canadian financial institution or at the CRA. If the due date is a Saturday, Sunday, or Canadian public holiday, your remittance is due on the next business day.

You remit the non-resident tax through a payroll remittance account. Yes, the same one you’d use if you had employees. If you have a payroll remittance account now, add another account with RP0002 so you can keep the non-resident payments separate. If you don’t have one, then set up a new account, and if you don’t plan on having employees just use RP0001 for that account.

Every year you will have to file an NR4 slip for each non-resident you are paying along with an NR4 Summary. This applies whether it’s an individual, partnership, or corporation. You must give recipients their T4A-NR slips on or before the last day of February following the calendar year to which the slips apply. If you do not, you may be subject to a penalty.

Can A Non-Resident Apply For An Exemption?

If the non-resident can show that the withholding is more than their potential tax liability in Canada, either due to treaty protection or income and expenses, CRA may waive or reduce the withholding. Non-residents who want to ask for a waiver or reduction of withholding have to file a waiver application to the tax services office in the area where their services are to be provided. Non-residents working in the film industry should send their applications to the applicable Film Services Unit in the Toronto, Montréal or Vancouver tax services office.

Waiver applications have to be filed no later than 30 days before the period of service begins, or 30 days before the first payment for the related services. The non-resident has to give you a letter from us authorizing a waiver or reduction of the withholding amount. If you do not receive such a letter, you have to withhold the usual 15%.

There are two different kinds of waivers a Regulation 105 (most non-residents) and a Regulation 107 (for the film industry).

Whenever you are dealing with non-residents of Canada ensure that the monies you’re giving them aren’t going to fall within this non-resident tax situation. You can talk to your accountant/bookkeeper, or call Canada Revenue.

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