Regulation 105 Payer Penalty and Waiver Deadline
You paid a foreign consultant for work done in Canada and withheld nothing. The liability is yours, not theirs. Work out the tax, the penalty, the interest, the gross-up cost and the waiver deadline for the next engagement.
total exposure
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The Exposure, Line by Line
| Item | Basis | Amount |
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The Waiver, and Whether It Was Available
| Item | Requirement | Your Position |
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Deadlines on Both Sides
| Party | Deadline | Consequence of Missing It |
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Points That Decide This
What to Do Next
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Disclaimer: Regulation 105 of the Income Tax Regulations requires every person paying a fee, commission or other amount to a non-resident in respect of services rendered in Canada to withhold 15% and remit it to the Receiver General. The obligation falls on the payer regardless of the contractor’s residence, treaty position or ultimate tax liability, and applies to services rather than to goods. Quebec imposes an additional withholding of 9% on amounts paid for services rendered in Quebec. Failure to withhold makes the payer liable for the amount that should have been withheld, together with a penalty of 10% of that amount, rising to 20% where the failure was made knowingly or through circumstances amounting to gross negligence, or where a second such failure occurs in the same calendar year. Interest is modelled at the prescribed arrears rate of 8% compounded daily from the remittance due date, which is the 15th day of the month following the month of payment. A treaty-based waiver on Form R105 should be filed at least 30 days before the services begin or 30 days before the first payment, whichever is earlier, and the CRA does not generally grant waivers retroactively. Withholding is an instalment against the contractor’s eventual Canadian tax and is refundable to the contractor on filing a Canadian return, subject to the CRA’s general three-year limit for refunds measured from the filing due date. Amounts paid for services rendered outside Canada are not subject to Regulation 105. This page is general information, not tax advice.
The Liability Lands on You, Not on the Contractor
This is the point of the whole page. Regulation 105 makes the payer responsible for withholding fifteen percent on amounts paid to a non-resident for services rendered in Canada. If you did not withhold, the CRA assesses you for the amount you should have withheld, plus a penalty and interest.
The contractor has been paid in full and has gone home. You are the one holding the assessment, and the money you owe is money you have already handed over to someone else.
| On $150,000 Paid Without Withholding | Amount |
|---|---|
| Tax that should have been withheld at 15% | $22,500 |
| Penalty at 10% | $2,250 |
| Interest over 14 months at 8% | $2,417 |
| Total assessed against the payer | $27,167 |
Recovering it from the contractor is theoretically possible and rarely happens. The invoice is paid, the relationship may be over, and there is often no practical way to enforce against a foreign entity for a Canadian tax you were supposed to have deducted. Assume the gross-up cost is yours and be pleasantly surprised if it is not.
The Treaty Does Not Stop the Withholding
A US consultant with no Canadian permanent establishment is very likely exempt from Canadian tax under the business profits article. That exemption does not remove your obligation to withhold.
The withholding is an instalment against tax the contractor may or may not ultimately owe. If they owe nothing, they file a Canadian return and get it all back. What the treaty changes is whether a waiver can be obtained in advance, not whether the fifteen percent applies by default.
Nobody ends up worse off in cash terms if the process is followed. The cost is entirely in getting it wrong. Withhold and the contractor recovers it. Waive in advance and nobody withholds anything. Ignore it and the payer funds the tax, the penalty and the interest personally.
The Waiver Needs Thirty Days and It Is Not Retroactive
Form R105 is filed by or on behalf of the non-resident, seeking relief from the withholding on the basis that a treaty exempts them or that fifteen percent substantially exceeds their eventual liability.
It should go in at least thirty days before the services begin or thirty days before the first payment, whichever comes first. The CRA does not generally grant waivers after the fact, so a waiver application filed the week the consultant lands is already too late for the work they are about to do.
| When the Waiver Is Filed | Outcome |
|---|---|
| 30 or more days before services begin | Normal processing, relief available |
| Under 30 days | May not be processed in time, withhold in the meantime |
| After the payment | Too late, the contractor claims a refund instead |
Quebec Adds a Second Layer
Where the services are performed in Quebec, Revenu Québec imposes its own withholding of nine percent on top of the federal fifteen. That is twenty-four percent in total, and it is a separate remittance to a separate authority with its own forms.
Payers who correctly handle the federal side and forget Quebec are common. The Quebec waiver is also separate, so a federal R105 waiver does not relieve the provincial obligation.
What Actually Triggers It
The rule catches far more arrangements than most businesses expect, because it applies to services rather than to any particular type of contract.
- A foreign engineer commissioning equipment at your plant
- An overseas software firm sending developers on site for an implementation
- A trainer or speaker delivering sessions in Canada
- An installer travelling in with machinery you purchased
- A consultant attending meetings in Canada as part of a larger engagement
- Any invoice mixing goods and services, on the services portion
Where an invoice covers both equipment and installation, the services element is caught. An invoice that does not split them invites the CRA to apply fifteen percent to the whole amount. Asking the supplier to break out the service component on the face of the invoice costs nothing and settles the question.
The Contractor’s Refund Has Its Own Clock
The contractor recovers over-withheld tax by filing a Canadian return. That is straightforward for a treaty-exempt consultant with no Canadian tax to pay, and it is the mechanism the whole system relies on.
What surprises people is that the refund is not indefinite. The CRA’s general limit is three years from the filing due date, so a contractor who ignores the withholding for several years can lose the money entirely. That is worth telling them when you withhold, because a contractor who understands the refund exists objects far less.
What This Calculator Does Not Cover
- Regulation 102, which applies to employees rather than contractors
- Whether the contractor has a permanent establishment, which is a technical determination
- The contractor’s own Canadian filing obligation and refund position
- GST/HST on services supplied in Canada by a non-resident
- Payments for goods, which are outside Regulation 105 entirely
- Provinces other than Ontario and Quebec
If there is another engagement coming, the waiver clock is the urgent thing. Our withholding tax compliance service covers the R105 waiver, the remittances, the historic exposure and the voluntary disclosure where one is appropriate.
Frequently Asked Questions
Common questions on failing to withhold under Regulation 105.
Related Calculators and Guides
More tools for payers of non-residents.
Fix the History and File the Next Waiver
Send us the invoices, the contracts and the payment dates. We will quantify the exposure, deal with the CRA, file the R105 waiver for the next engagement and set up the remittance process so it does not happen again.