Revised CRA Policy Will Impose Withholding Tax On Subcontractor Reimbursements

The Canada Revenue Agency (CRA) has announced significant revisions to its assessing policy that will affect payments made to non-Canadian contractors for reimbursed costs incurred for engaging Canadian subcontractors.

Fees paid to a non-Canadian service provider may include a reimbursement for costs incurred by a Canadian subcontractor. These reimbursed amounts were not previously subject to Canadian withholding tax. However, the revised CRA assessing policy may now lead to unintended tax liabilities and consequences to both the service recipient (i.e., the customer) and the non-Canadian service provider.

The new CRA policy will apply to payments made after Sept. 30, 2024.