Back Taxes: Unfiled Withholding Tax

Regulation 105: Withholding Tax for Non-Residents

In today’s global economy, earning income in a country in which you are not a resident is commonplace. However, many countries have specialized tax rules in place that withhold part of this income. These rules are referred to as “withholding taxes”; one of Canada’s withholding taxes is found in Regulation 105 of the Income Tax Act.

What is Regulation 105?

Regulation 105 of the Canadian Income Tax Act imposes a 15% withholding tax on fees, commissions or other amounts earned from services rendered in Canada by non-resident individuals and corporations. This Regulation does not apply to the sale of goods; just to the payment of services. The rationale behind Regulation 105 is to ensure that the non-resident service-provider pays any Canadian income tax duly owing.

Regulation 105 is set out as follows:

“Every person paying to a non-resident person a fee, commission or other amount in respect of services rendered in Canada, of any nature whatever, shall deduct or withhold 15 per cent of such payment.”

The types of activities typically caught by Regulation 105 include work site supervision, consulting, lecturing, equipment servicing, and participation in an entertainment or sports event.

How does Regulation 105 work?

Regulation 105 puts the majority of the withholding and remitting obligations on the payor for the services rendered in Canada. The payor is required to withhold 15% of the payments made. If the required amount is not withheld, the company must pay (on behalf of the non-resident) the payment amount plus interest and applicable penalties. Additionally, the payor is required to remit all Regulation 105 withholdings to the Receiver General by the 15th of the month following the month in which the payment was made. Payors are required to file a special form in order to report all amounts paid to non-residents. This form is due by the last day of February of the year following the year in which payments were made

If the withholding requirements of Regulation 105 are not met, the employer is responsible for any monies not collected and it becomes a back tax issue for the employer. Tax Doctors Canada has highly qualified accountants in the area of international tax and non-resident tax services. Failure to comply with with your non-resident employee tax obligations can be very costly.Tax Doctors Canada can efficiently and cost effectively ensure that you comply with all your obligations under Regulation 105 in order to avoid any possible back tax complications

Do not hesitate any longer, call toll free at 1 855 TAX DOCS (855 829 3627) or use our convenient contact web form on this page for a free no obligation consultation regarding all your back tax filing needs. The professional accountants at Tax Doctors Canada can negotiate a settlement for you with the tax department and possibly save you interest, penalties and prosecution. There are Tax Doctors Canada locations in Mississauga, Toronto and Markham to serve you.

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