A Canadian person who pays a non-resident for services provided in Canada is required to withhold 15% of the payment and remit it to the Canada Revenue Agency (CRA). Canada generally taxes non-residents on their income from carrying on business in Canada. Generally, non-resident service providers are exempt from Canadian tax if (1) they do not have a permanent establishment in Canada under an applicable tax treaty, or (2) because the service is international shipping or operating an aircraft in international traffic.
Non-resident service providers who owe no Canadian taxes can request the CRA to waive withholding tax on specific transactions in advance. Otherwise, they get a refund later, which can be inconvenient.
Budget 2024 proposes to provide the CRA with the legislative authority to waive the withholding requirement, over a specified period, for payments to a non-resident service provider if either of the following conditions are met:
(1) A tax treaty between Canada and the provider's home country exempts them from Canadian income tax on these payments; or
(2) The income comes from activities specifically exempt, like international shipping or aircraft operations.
This proposal would allow the CRA to waive the withholding requirement on multiple transactions with a single waiver.
This measure would come into force on royal assent of the enacting legislation.