Principal Issues: Whether every partner of partnership that has had Regulation 105 withholdings in respect of fees for services rendered in Canada must file a return to obtain a refund.
Position: Yes but could obtain waiver of Reg 105 withholding in certain circumstances.
Reasons: Legislation
International Fiscal Association
2012 Conference
CRA Roundtable
Question 6 - Professional firms providing services in Canada
If Regulation 105 withholding is deducted from payments for services made to a US partnership, does the CRA require every non-resident partner of US partnership that is allocated (under partnership agreement) income pertaining to the activities carried on by the partnership in Canada to file a Canadian tax return to claim a refund of their share of the withholding?
CRA Response
Regulation 105 withholding does not represent a final tax of the non-resident. Rather, it is a payment on account of the non-resident's potential Part I tax liability to Canada. The ultimate tax liability is determined after the assessment of the non-resident's Canadian income tax return. Non-resident partners of a partnership are required to file a Canadian income tax return to calculate their tax liability and to obtain a refund. There is currently no administrative procedure whereby a refund can be issued in respect of a particular non-resident partners share of the Regulation 105 withholding without that partner filing a tax return. However, where a partnership can demonstrate, based on treaty protection, that the normally required withholding is in excess of the ultimate tax liability, the partnership can make an application for a treaty-based waiver of Regulation 105 withholding on behalf of the partnership.
Olli Laurikainen
2012-044410
May 17-18, 2012