Do I withhold tax paying a foreign consultant who worked in Canada?
Yes, and the point that catches people is that it applies even where a treaty will ultimately exempt the consultant from Canadian tax. The two things are not in conflict. The deduction at payment is a collection mechanism; the treaty relief is worked out afterwards, on a return. The obligation is yours as payer, not the consultant's, which surprises most businesses the first time they meet it. If the consultant expects to receive the invoice in full, the time to deal with that is before payment, by applying for a waiver, rather than by deciding not to withhold.
My contractor says the treaty exempts them, can I skip withholding?
No. A treaty exemption that applies at the end does not remove the withholding at the front. The consultant may well owe no Canadian tax once the treaty is applied, but until the position is confirmed in the proper way the payer is still required to withhold on the gross fee. The consultant then recovers what was withheld by filing a Canadian return. If you want the money not to be held back in the first place, the route is a waiver applied for before payment. Acting on the consultant's assurance alone leaves the liability sitting with you.
Who is liable if I forget to withhold, me or them?
You. The obligation attaches to the payer, so a failure to withhold becomes the payer's exposure rather than the non-resident's, and it does not transfer merely because the consultant later files and pays their own Canadian tax. That is why the question has to be settled before the invoice is paid rather than at year end, and why it is worth a line in the purchase order recording where the services will be performed. Recovering the amount from the consultant afterwards is a commercial matter between the two of you, and by that point the leverage has gone.
How do I apply for a waiver before paying a non-resident?
The application is made in advance of the payment, and it asks the tax authority to reduce or remove the withholding because the non-resident's final Canadian liability will be lower than tax on the gross fee. You need the engagement details, being what is to be done, where, over what dates and for what fee, along with information about the non-resident. The timing is the entire point. A waiver granted before payment stops the money being held back, while one applied for afterwards achieves nothing, because by then the only remaining route is a Canadian return.
Does withholding apply if the consultant is only here a week?
A short visit does not put the fee outside the rules. What matters is that the services were rendered in Canada, not how long that took. A foreign consultant who flies in for a week of work triggers Canadian withholding on the fee for that work, and the obligation is the payer's. Where an engagement is performed partly in Canada and partly abroad, the fee has to be split on the facts, and the split needs to come from a travel record rather than an estimate made later. Short visits are the engagements most often missed altogether.
Can the non-resident get the Canadian tax withheld refunded?
Usually, by filing a Canadian return for the year in which the work was done. Withholding is applied to the gross fee rather than to the profit, so it commonly exceeds the tax finally due, and where a treaty exempts the income altogether the whole amount may come back. The catch is the wait, because the return cannot be filed until after the year ends. Non-residents who have been through it once tend to ask for a waiver on the next engagement, or to price the delay into the fee. Keep the withholding documentation, because the return depends on it.
How many days can I spend in a country before I become tax resident?
It depends on the country, and a day count is only ever the start. Many use a threshold in a tax year, some also look at averages across several years, and some have no day test at all and decide on where your home and life are. Two countries can both conclude you are resident, which is what the treaty tie-breaker exists to settle. Counting days without checking the tie-breaker is how people end up filing as resident nowhere. See the residency tie-breaker.
What is Part XIII withholding tax in Canada?
Part XIII is the Canadian charge on certain amounts paid to non-residents — rent, dividends, interest, royalties, pensions and similar passive income. The payer withholds and remits it, and it is a flat charge on the gross payment rather than on profit, which is why a non-resident landlord can be withheld on far more than the net rental result. Treaties reduce the rate and elective returns recover the excess. See the section 216 return.
