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Regulation 105 in need of a Section 116 Amendment

Canada

A Canadian income tax provision is hampering Canadian businesses and prompting US companies to reconsider business opportunities in Canada. The Income Tax Regulation (Regulation 105) finds itself at the forefront of income tax provisions in need of amendment. Taxand Canada examines the scope of the Regulation 105, its onerous characteristics and an alternative approach to the current system it imposes.

Taxand's Take


To maximise Canada's access to foreign expertise and relieve Canadian businesses from costly and time consuming procedures, action must be taken to amend Regulation 105 and adopt a certification system. Until such time, businesses will continue to seek alternative ways of circumventing Regulation 105 requirements. For instance, non-residents may consider incorporating a Canadian subsidiary or arranging for the secondment of its employees to avoid withholding. However, these arrangements are not without risk. This is evidenced through cases where the CRA has ruled that a seconded employee was not truly seconded to the receiving employer. As was the case with Section 116, which was recently amended in March 2010, the need for change is clear, the solution is simple and the benefits significantly outweigh the costs. The Section 116 amendments were unanimously praised by Canadians and non-residents alike. A similar response should be expected if revisions are made to Regulation 105.

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Your Taxand contact for further queries is:
Pierre G Alary
T. +1 61 3786 0132
E. pierre.alary@gowlings.com

Taxand's Take Author