Regarding the situation where a Canadian taxpayer (CanCo) engages a non-resident (NRCo) to provide services to be rendered in Canada, with NRCo subcontracting part of the services rendered to CanCo in Canada to another corporation (SupplierCo), CRA noted that its previous position in 2008-0297161E5 was that the reimbursement of an expense would not be subject to Reg. 105 withholding based on the finding in Weyerhaeuser that that Reg. 105 applied to an amount that is remuneration for services rendered that had the character of income in the hands of the recipient.
However, CRA’s new position was that an amount paid in the circumstances described here, other than the reimbursement of certain out-of-pocket costs (such as, apparently, the travel expenses in Weyerhaeuser), would be considered to be paid for services rendered in Canada that indeed have the character of income in the hands of NRco. The fact that NRco enters into a further agreement with the Supplierco does not alter the character of the payment to NRco, so that Reg. 105 would apply to the full amount received by such non-resident contractor irrespective of whether the subcontractor was a Canadian resident who was fully subject to Canadian tax.