Principal Issues: [TaxInterpretations translation] Is an amount of commission paid to a non-resident real estate agent subject to withholding pursuant to subsection 105(1) ITR if that agent conducted financial analyses and participated in conference calls from his or her country of residence?
Position: No.
Reasons: Wording of the Act and Regulations.
XXXXXXXXXX Yannick Roulier (613) 957-2134
2010-035479
Attention: XXXXXXXXXX
August 24, 2010
Dear Sir:
Subject: Withholding tax - Commission paid to a non-resident real estate agent
This is in response to your email of January 20, 2010 requesting our opinion regarding the existence of an obligation to withhold tax at source on a commission amount paid to a non-resident real estate agent in the following hypothetical situation.
The following are statutory references to the provisions of the Income Tax Act, (R.S.C. 1985, c. 1 (5th Supp.); "ITA"), or the Income Tax Regulations (C.R.C., 1978, c. 945; "ITR"), as amended, in effect as of the date hereof.
Hypothetical situation submitted
1. An individual resident in the United Kingdom carries on, as an individual, a business as a real estate agent (the "Non-resident Agent").
2. The Non-resident Agent works with a Canadian real estate brokerage firm ("Canadian Agent") for the sale of an immovable located in Quebec.
3. The Non-resident Agent contributes to the sale of the property by performing work from the individual’s country of residence without travelling to Canada, including financial analysis and participating in conference calls.
4. Both the purchaser and the vendor of the immovable are residents of Canada.
5. A commission amount is paid to the Non-Resident Agent by the Canadian Agent out of the commission amount paid by the seller to the Canadian Agent.
Question
Should the Canadian Agent withhold tax at source on the amount of commission paid to the Non-Resident Agent in the hypothetical situation submitted?
Comments
It appears to us that the situation described in your letter may constitute an actual situation involving taxpayers. As explained in Information Circular 70-6R5 issued on May 17, 2002, it is the practice of the Income Tax Rulings Directorate of the Canada Revenue Agency ("CRA") not to issue written opinions on proposed transactions otherwise than by way of advance income tax rulings. If your situation involves a specific taxpayer and a transaction, you should forward all relevant facts and documents to the appropriate CRA Tax Services Office for its views. However, we would be pleased to provide the following general comments, which we hope you will find helpful. These comments are technical interpretations that are not binding on the CRA and may, in some circumstances, not apply to your particular situation.
Withholding tax is required to be withheld pursuant to paragraph 153(1)(g) of the ITA and subsection 105(1) of the ITR in respect of payments made to non-residents who provide services in Canada otherwise than in the course of employment. Withholding under ITR section 105 also applies to payments made in advance for services to be performed in Canada by a non-resident. Thus, a commission paid to a non-resident of Canada is not subject to withholding tax under ITR subsection 105(1) if all of the services rendered by the non-resident are performed outside Canada.
As a reference respecting the application of this withholding rule, we refer generally to Information Circular 75-6R2, “Required Withholding from Amounts Paid to Non-Residents Providing Services in Canada”, issued by CRA on February 23, 2005.
We hope that the above comments are of assistance.
Best regards,
Alain Godin
for the Director
International Operations and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.