What Is Regulation 105?
Canada’s Regulation 105 requires a 25% withholding tax on payments to non-residents for services performed in Canada. This applies to contractors, consultants, artists, or any remote worker doing work “in Canada”. Non-resident means you're not a Canadian resident for tax purposes.
What’s the Problem?
- The taxation can feel harsh, especially if your actual tax owing is far less than the withheld 25%.
- The process for getting a waiver has traditionally been slow, opaque, and burdensome.
Recent Developments
A new consultation was published last week by the CRA titled Consultation on the Income Tax Regulation 105 Waiver Process. Inputs were sought to simplify the waiver application, reduce administrative burden, and develop digital processing of applications.(canada.ca)
That means changes may be coming to streamline how non-residents apply and possibly faster or more flexible processes.
What Should You Do Now?
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Determine eligibility: If you expect your actual Canadian tax liability to be less than the amount withheld under Reg 105, you’re eligible to apply for a waiver.
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Start collecting documents: Contracts, proof of income, expenses, residency status, possibly treaty-based relief—all will help support a waiver application.
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Watch for formal rules: The consultation will likely result in regulatory changes—keep an eye on official Canada.ca or CRA announcements. If a digitized waiver process arrives, acting early means you’ll be ahead.
Example
Imagine Maria, a digital nomad based in Spain, who does consulting work for a Canadian tech company. Under Reg 105, her income would have 25% withheld unless she obtains a waiver. She expects her final tax liability under a treaty to be closer to 10%. By preparing clear contracts, expense documentation, and applying for the waiver (once the process improves), she may reduce withholding significantly and improve cash flow.
Bottom line: If you’re non-resident earning service income tied to Canada, Regulation 105 matters. The new consultation signals possible relief—but the key is preparing ahead, collecting documentation, and staying plugged into CRA’s updates.