The client
An incorporated equipment-rental business near Grande Prairie hired a US-based specialist technician for one job, paying $40,000 for the work without withholding any tax on the payment.
Payment to the non-resident subcontractor
$40,000
Regulation 105 withholding required
$6,000
15% of the gross payment
Existing mortgage balance
$220,000
Owner's monthly income
$8,400
The problem
Regulation 105 requires every payer -- including a Canadian corporation -- to withhold 15% of the gross amount paid to a non-resident for services performed in Canada, other than employment, and remit it to CRA by the 15th of the following month. Failing to withhold does not make the tax disappear; it makes the payer liable for the amount that should have been withheld, plus interest and penalty.
How the gap surfaced
- ▸The corporation had never engaged a non-resident subcontractor before, and simply paid the US technician's invoice in full
- ▸No T4A-NR slip was issued and no withholding was remitted, as Regulation 105 and Regulation 108 both require
- ▸CRA later assessed the corporation directly for the unwithheld $6,000 under section 227 of the Income Tax Act, plus interest
A first lender's underwriter, seeing an unusual CRA liability appear on the corporation's books mid-file, read it as a sign of financial trouble. It was neither ongoing nor a symptom of anything -- it was a one-time compliance gap on a single invoice, fully explainable and fully payable.
The numbers
Once the assessment was confirmed, sizing a refinance to clear it alongside the existing mortgage was straightforward arithmetic.
| The Regulation 105 shortfall, and the refinance that cleared it | Amount |
|---|---|
| Regulation 105 withholding on the $40,000 payment (15%) | $6,000 |
| Existing mortgage balance | $220,000 |
| Refinanced balance, assessment included | $226,000 |
| Total debt service, owner's income | Figure |
|---|---|
| Payment at the qualifying rate (6.75%), 25 years | $1,548/mo |
| Property tax | $300/mo |
| Heat (lender estimate) | $120/mo |
| Car loan | $270/mo |
| Total debt service | 26.6% |
26.6% on the owner's $8,400/month income shows the refinance itself was never the strain in this file -- once the assessment was correctly explained as a one-time compliance gap rather than declining self-employed business performance, the underwriter's concern resolved on its own.
The solution
A mortgage associate licensed under Alberta's Real Estate Act treated the CRA liability as a documentation problem to be explained precisely, not a red flag to be argued away.
First, obtained the CRA assessment notice itself, confirming it traced to a specific Regulation 105 withholding failure on a single, identified invoice rather than a broader audit of the business.
Second, had the accountant confirm the corporation had put a withholding process in place for any future non-resident subcontractor payments, showing the underwriter this was a corrected, one-time gap.
Third, sized the refinance to clear the existing mortgage and the $6,000 assessment together, rather than leaving the CRA liability outstanding against the business.
The outcome
The refinance funded at 4.75%, clearing the existing mortgage and the Regulation 105 assessment together, with total debt service at 26.6%.
Because this is an uninsured refinance, CMHC's ratio maximums do not apply directly; the 26.6% figure is informational.
What to take from this file
- 01Regulation 105 requires 15% withholding on payments to a non-resident for services performed in Canada. Failing to withhold makes the Canadian payer liable for the shortfall, not just the non-resident.
- 02A one-time CRA assessment on a single invoice is not the same as a declining business. Trace it back to its specific cause before treating it as a red flag.
- 03Confirm the business has corrected its process going forward. That is what actually distinguishes a one-time gap from an ongoing compliance problem.
- 04A modest, explainable CRA liability can be funded through an ordinary refinance. The real work is in the explanation, not the arithmetic.
Sources
Every regulatory figure in this file traces to one of these primary sources. Client details and anything that varies by lender are illustrative, as flagged below.
- ▸OSFI — Minimum qualifying rate for uninsured mortgages — the minimum qualifying rate — greater of contract rate + 2% or 5.25%.
- ▸Provincial/territorial mortgage-broker legislation fetched directly (bclaws.gov.bc.ca, legisquebec.gouv.qc.ca, fcaa.gov.sk.ca, web2.gov.mb.ca, nslegislature.ca, assembly.nl.ca) plus FCNB's own site for NB and CanLII's index for PE — see notes for per-province method — provincial mortgage regulators and licence titles.
Illustrative in this file — lender-specific, not rules:
- ▸4.75% contract rate — rates move daily; not a quote.
- ▸the $40,000 invoice and $8,400/month income — this corporation's own transaction and the owner's own income; every self-employed file's figures are individual.
- ▸the 26.6% TDS figure — this is an uninsured refinance, so there is no CMHC ratio ceiling -- the number is informational.
Authority & provenance
How this case file was built
We publish the origin, the verification method and the reviewer for every case file, so you can judge how far to trust it before you rely on it with a client.
Where it comes from
Derived from files handled by Treadstone’s fulfillment desk and from scenarios contributed by partner brokerages. Names, employers, exact amounts and dates are changed so no client or file is identifiable.
Provenance: Composite — a pattern seen repeatedly on fulfilled files, not a single transaction.
What is verified
Every regulatory figure traces to a primary source listed above and was checked against it on the date shown. The arithmetic is recomputed by machine on every rebuild.
Anything that varies by lender is labelled illustrative rather than stated as a rule.
Who reviewed it
Reviewed for Canadian regulatory accuracy before publication, and re-checked whenever a cited rule changes.
Reviewed by: Nicholas Parson, Treadstone Associates — reviews every case file before publication.
This case file is professional reference material for licensed mortgage professionals. It is not advice to a borrower, and it is not a lender commitment. Insurer rules, qualifying rates and provincial taxes change — confirm the current position with the insurer, regulator or lender before you rely on any figure here in a live file.