On 12 June 2026, the Canada Revenue Agency (CRA) announced that it is further extending, from 30 June 2026 to 31 March 2027, the administrative relief it had previously granted from Regulation 105 withholding tax on subcontractor fees reimbursed to nonresidents.

This relief has been granted in respect of the CRA's new position announced in June 2024 that requires Canadian resident corporations to withhold tax on subcontractor fees reimbursed to nonresident corporations for services performed in Canada, effective for subcontractor fees reimbursed after 30 September 2024. Taxpayers who relied on the CRA's previous position were initially granted administrative relief from withholding tax, interest and penalties with respect to payments made to nonresidents on or before 30 September 2024. In August 2025, the CRA announced that this relief would be reinstated and extended until 30 June 2026.

As a result of the CRA's latest announcement, affected businesses that require additional time to implement the change in position may continue to qualify for relief from withholding tax, interest and penalties for relevant payments made to nonresidents until 31 March 2027.

This Tax Alert provides a brief overview of the CRA's new position on subcontractor fees reimbursed to nonresidents for services performed in Canada. For more information on the evolution of the CRA's position and an overview of what taxpayers should consider to comply with the CRA's new position, see EY Global Tax Alerts, Canada Revenue Agency announces position change on withholding tax for subcontractor fees, dated 18 July 2024 and Canada Revenue Agency extends administrative relief relating to Regulation 105 withholding tax on subcontractor fees, dated 20 August 2025.

Background

Under paragraph 153(1)(g) of the Income Tax Act (the Act) and section 105 of the Income Tax Regulations (Regulation 105), fees, commissions or other amounts paid to a nonresident person in respect of services rendered in Canada are subject to a 15% withholding tax.

In a 2008 CRA document,¹ the CRA took the position that Regulation 105 withholding tax would generally not apply to a reimbursement of a nonresident's expenses, including subcontractor fees and travel costs, for services rendered in Canada, provided information regarding the reimbursement was available and documented at the time the payment was made to the nonresident.

However, a 2019 CRA document² concluded that advance payments made by a Canadian resident corporation to a nonresident corporation for services performed in Canada by a subcontractor would be subject to Regulation 105 withholding tax. In the same document, the CRA confirmed that Regulation 105 withholding tax would not apply to amounts paid to a nonresident for the reimbursement of travel costs the nonresident paid to a subcontractor in respect of services performed in Canada.

CRA's new position — 2024 announcement

In a CRA document released on 5 June 2024 (the 2024 CRA document),³ the CRA stated that, in the scenario provided, a Canadian resident corporation's reimbursement of travel and meal costs to a nonresident corporation in respect of services performed in Canada would not be subject to Regulation 105 withholding tax, regardless of whether those amounts were paid by the nonresident or a subcontractor, provided that the Canadian resident corporation had agreed to reimburse the costs. However, fees a Canadian resident corporation paid to a nonresident corporation for services performed in Canada (i.e., by a subcontractor) would be subject to Regulation 105 withholding tax.⁴

The CRA acknowledged that its views in the 2024 CRA document represented a change in position from the 2008 CRA document and stated that this change in position applies to reimbursements of subcontractor fees made after 30 September 2024.⁵

Further, the CRA indicated that for taxpayers who made payments potentially subject to Regulation 105 withholding tax after 16 September 2009, and on or before 30 September 2024, and who relied on the views expressed in the 2008 CRA document, no assessment would be made for additional Regulation 105 withholding tax, interest or penalties, provided the conditions set out in the 2008 CRA document were otherwise met. For an overview of those conditions, see EY Global Tax Alert, Canada Revenue Agency announces position change on withholding tax for subcontractor fees, dated 18 July 2024.

Temporary administrative relief

If the conditions under the CRA's former position that were set out in the 2008 CRA document are met, affected businesses that need more time to implement the CRA's new position may qualify for relief from additional Regulation 105 withholding tax, interest and penalties for subcontractor fees reimbursed to nonresidents until 31 March 2027.

This extension will also provide the CRA with more time to develop and implement new procedural guidance related to new waiver rules introduced in subsections 153(8) and (9) of the Act, and to reflect feedback the CRA has received through the public consultations held on the Regulation 105 waiver process.

Regulation 105 waiver

Currently, if a nonresident can demonstrate that the normally required withholding tax on a payment exceeds the nonresident's ultimate tax liability, based on treaty protection or the nonresident's estimated income and expenses, the CRA may waive or reduce the withholding tax accordingly on application by the nonresident.⁶ However, the application process is complex and often time consuming.

To improve efficiency, subsection 153(8) of the Act was introduced to allow the CRA to waive, over a specified period, the requirement to withhold tax on payments to a nonresident for services provided in Canada if the nonresident would not be subject to Canadian income tax in respect of the payments because of a tax treaty between their country of residence and Canada, or because the nonresident does not carry on business in Canada.⁷ To date, the CRA has provided no additional guidance on how to apply for this relief.

On 31 March 2026, the CRA provided an update on the results of the summer 2025 public consultations on the current Regulation 105 waiver process. In response to the feedback collected during the consultations, the CRA indicated that it will gradually implement measures to make the waiver process simpler and more efficient, beginning in late spring of 2026.

In this latest update on 12 June 2026, the CRA indicated that it is continuing to work on new guidance to support the legislative framework in subsections 153(8) and (9) of the Act, while exploring opportunities to modernize the Regulation 105 waiver process. For example, the CRA is exploring approaches that would allow taxpayers to use, in certain situations, declarations or certifications of eligibility that a payer has validated. The intent would be to reduce processing delays and ensure more efficient interactions with the CRA by limiting reliance on case-by-case reviews.

EY Canada will continue to monitor for further developments with respect to Regulation 105 withholding tax, including the release of any additional guidance by the CRA.