Management Fees, Rent, Royalties and Similar Amounts Paid or Payable to Non-residents

Bulletin 3004
Published: January 2002
Content last reviewed: November 2010
ISBN: 0-7794-1573-6 (Print)

Publication Archived

Notice to the reader: Effective January 1, 2009, the Canada Revenue Agency (CRA) administers Ontario's corporate income tax, capital tax, corporate minimum tax, and the special additional tax on life insurers.

As a result, the Corporations Tax Act provisions described on this page and in other publications are only applicable to taxation years ending December 31, 2008 and prior.

For taxation years beginning January 1, 2009, the Taxation Act rules apply.

This publication was archived and kept for historical purposes. Use caution when you refer to it, since it reflects the law in force at the time it was released and may no longer apply.

References: subsection 11(5), 11(5.1), 11(5.2), 11 (5.3), 11(5.4), 11(6), 11(7), 11(8) 11(8.1)


This bulletin replaces Interpretation Bulletin Number 2618 originally published March 1984 and is updated for comments on this subject contained in previous Information Bulletins 2737, 2738 and 2742.

The bulletin sets out the policy of the Corporations Tax Branch. It is provided as a guide to taxpayers and is not intended as a substitute for the relevant legislation. Any references to legislation are to the provisions of the Corporations Tax Act (Ontario) (CTA) and its Regulations, unless otherwise noted.


  1. Subsection 11(5) includes in income a designated fraction of management fees, rents, royalties and similar payments which are paid or payable to a non resident person or non-resident owned investment corporation with whom the corporation is not dealing at arm's length.

Types of Payments

  1. Subsection 11(5.1) describes the payments which must be added to income. These payments fall into the following categories:
    1. Management or administrative fees or charges including fees and charges based on the sale of goods or services, production or profits, but not amounts specifically excluded from Part XIII withholding tax as described in subsection 212(4) of the Income Tax Act (Canada) (ITA).
    2. Rents, royalties or similar payments, but not amounts specifically excluded from Part XIII withholding tax as described in subparagraphs 212(1)(d)(vi) to (ix) of the ITA. Subject to certain excluded amounts discussed in paragraph 5 below, examples of payments to which the add-back applies are:
      • know-how payments for special knowledge, skill or techniques, technical fees for the use of confidential technical information
      • payments for the use, in Canada, of any property, invention, trade mark, design or model plan, secret formula, process, trade name or patent
      • certain payments for services of an industrial, commercial or scientific character performed by a non-resident person
      • certain payments made to a non-resident to ensure that property or information will not be used by the non-resident or any other person.
    3. A right in, or for the use of:
      • motion picture film, or
      • a film or video tape or any other type of reproductive media used in television, except where used solely for a news program produced in Canada.
  1. For amounts payable to a partnership or amounts payable by a partnership, to a non-resident person, a non-resident owned investment corporation or another partnership, refer to subsection 11(7).

Excluded Amounts

  1. Where the non-resident recipient is subject to tax in Canada and has included the payment in taxable income earned in Canada, the add-back is not required.
  2. Other excluded payments are discussed in the following table:

    If the payment is
    • for management fees based on the cost plus mark-up of specific expenses, refer to CTA subparagraph 11(5.1)(1)(ii) and subsection 11(5.3)
    • for rents, royalties and similar payments related to the use in Canada of computer software or a patent or information related to industrial, commercial or scientific experience or a design, model, plan, secret formula or process, refer to CTA subparagraph 11(5.1)(2)(ii)
    • made to a related non-resident person who is acting as an agent of the Canadian payor corporation and the payments are subsequently remitted to an arm's length non-resident person entitled to the payment, refer to CTA paragraph 11(5.2)(1)
    • an unpaid amount included in the corporation's income under section 78 of the ITA, refer to CTA subsection 11(5.4)

Timing of Inclusion

  1. The addition to Ontario taxable income is required in the same taxation year in which the payments are paid or payable to non-residents and are deducted in computing the payor corporation's income.

Amount of Add-back

  1. Subsection 11(8.1) provides that the fraction of payments to related non residents to be included in income is the total of:

    The number of days in the taxation year Divided by Multiplied by 5 over
    after December 18, 1985 and before May 2, 2000 the total number of days in the taxation year 15.5
    after May 1, 2000 and before January 1, 2001 14.5
    after December 31, 2000 and before October 1, 2001 14.0
    after September 30, 2001 and before January 1, 2003 12.5
    after December 31, 2002 and before January 1, 2004 11.0
    after December 31, 2003 and before January 1, 2005 9.5
    after December 31, 2004 8.0

Paid or Payable

  1. Amounts are considered to be paid or payable when:
  • monies have been forwarded in the form of cash, cheque, money order or bank draft
  • cash has been deposited in a special bank account in favour of the payee, who can draw upon it at any time, or
  • a legal obligation to pay has been incurred and the corporation has disclosed the liability in its books of account and balance sheet.
  1. Some guidance is provided by Information Circular (IC) 77-16R4, dated May 11, 1992, published by the Canada Revenue Agency. In particular, paragraph 5 of IC 77-16R4 states that an amount is considered paid when the amount is applied by the payor corporation against an amount owing by the non-resident.


  1. Subsections 11(6) and 11(6.1) require a similar addition to income for payments that would be to non-residents but are channelled to non-residents through other provinces. The provision will apply where the payment is made to a related person in another province and that person is related to a non-resident person that controls the taxpayer.
  1. Subject to certain conditions, subsection 11(8) allows the Minister to apply the add-back rules to a contract or arrangement designed to circumvent subsection 11(5).

Filing Requirements

  1. The add-back amount should be shown on the schedule in the CT23 return which reconciles net income for federal tax purposes to net income for Ontario tax purposes. The corporation may be asked for documentation which supports the management or administration fees, rents, royalties and other similar amounts which are the basis for the add-back amount.
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