A US partnership (USFirm) subcontracts part of its contract, to perform consulting services to an arm's length Canadian customer (Canco), to an arm's-length Canadian professional firm (CanFirm) and Reg. 105 witholding is deducted by Canco on payments made to USFirm. In response to queries as to whether CRA require every partner of USFirm that is allocated income pertaining to the activities in Canada to file a Canadian tax return to claim its share of the withholding, and whether CRA requires every partner that is a corporation to file a Canadian corporate income tax return under the "carrying on business in Canada" criteria, CRA stated:
There is currently no administrative procedure whereby a refund can be issued in respect of a particular non-resident partner's 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.
Corporate members of a partnership must file an income tax return pursuant to paragraph clause 150(1)(a)(i)(B) if they carry on business in Canada (i.e. including through a partnership).