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In general, payers of non-resident rendering services in Canada are required to withhold taxes and remit them to the CRA. For payments to contractors or businesses, the standard withholding is 15% of the pay for services being provided in Canada. For payments to employees, the standard withholding is based on the payroll source deductions, i.e. taxes, CPP and EI that would apply to a Canadian resident employee.
Often where the non-resident is from a country with which Canada has a Tax Treaty, the taxpayer will not be ultimately liable for tax in Canada due to a treaty exemption. Where this is the case, it is possible to apply for a waiver from withholding taxes from the payments to the non-resident. This process is referred to as a Regulation 102 or 105 Waiver and has traditionally been administratively cumbersome.
The CRA has acknowledged taxpayers’ frustrations and has made these recent changes in an effort to improve the process:
The CRA acknowledged concerns that waivers were being issued for short time periods, i.e. 6 months, requiring taxpayers to reapply for waivers for the remainder of the year. If the applicant provides the approximate number of days he or she will be in Canada and approximate earning amounts, the CRA will now issue waivers that apply for the full calendar year.