Paying a Team in India from Your Canadian Business: The CRA Rules That Matter

By Abhinav Chhabra, Ledger Brigade | 21 October 2026

Many Indo-Canadian founders run a lean Canadian company with designers, developers or bookkeepers in India. The tax rules follow where the work is done, who is paying and what your business does.

It's Small Business Week (19 to 25 October), and the federal budget is due on 5 November. A good time to check your setup before 2027 contracts.

What actually triggers Canadian tax obligations

1. Regulation 105 withholding: only for work done in Canada.
When you pay a non-resident fees for services rendered in Canada, you must withhold 15% of the gross amount and remit it to the CRA. The CRA says plainly that payments "for services performed outside of Canada are not subject to Regulation 105 withholding."

So a developer in Pune who works only from Pune isn't subject to Regulation 105. If that developer spends two weeks at your Toronto office, the fees for those two weeks are. When a contract covers both, the CRA expects a reasonable allocation that is documented. Without one, the CRA recommends that you withhold. For services rendered in Quebec, an extra 9% provincial withholding applies on top.

2. T4A-NR slips follow the Canadian work.
For services rendered in Canada, you file a T4A-NR slip and summary for the non-resident, whatever the amount, by the last day of February of the following year. Withheld tax is due by the 15th of the month after you deduct it. If you don't withhold, the CRA can assess you, the payer, for the tax plus interest and penalties.

3. GST/HST self-assessment on imported services.
Services bought from an unregistered supplier outside Canada can be an "imported taxable supply." If your business uses those services less than 90% in commercial activities, you must self-assess the GST, or the federal part of the HST. You may also owe the provincial part of the HST if you're in a participating province. Registrants report this on line 405 of their GST/HST return. Non-registrants use Form GST59.

This catches people out because many Indo-Canadian businesses make exempt supplies: dental and medical practices, residential landlords and some financial services. If you're mostly commercial (90% or more), you generally don't self-assess.

4. If you own an Indian company, two more forms.

• T1134 (foreign affiliates): due 10 months after your tax year-end, with an exemption for small, dormant affiliates.
• T106 (non-arm's-length transactions with non-residents): required when your total reportable transactions with related non-residents exceed $1 million in the year. The CRA lets you skip detailed slip reporting for any single non-resident under $100,000.

Prices charged between your Canadian company and your Indian company must also be at arm's length (the transfer pricing rules).

The numbers at a glance

What it means on the India side

Your contractor's Indian tax is their responsibility, but it shapes your paperwork. Under India's IGST Act, a service counts as an export (zero-rated) only if all of these hold:

• the supplier is in India
• the recipient is outside India
• the place of supply is outside India
• the payment is received in convertible foreign exchange (or rupees where the RBI permits)
• the two parties aren't "merely establishments of a distinct person"

GST-registered suppliers can export under a Letter of Undertaking (LUT) without paying IGST. In practice, pay in foreign currency through banking channels, against a proper invoice.

Worked examples

These scenarios are hypothetical illustrations, not client cases.

Example 1: Ontario e-commerce company, designer in India.
An HST-registered Brampton company pays a freelance designer in Pune $2,500 a month. All the work is done in India.

• Regulation 105: none (no services rendered in Canada)
• T4A-NR: not required for these payments
• HST self-assessment: none, because the company uses the service 90% or more in commercial activities
• Income tax: generally deductible as a business expense, if reasonable and incurred to earn income

Example 2: BC dental practice, billing assistant in India.
A Surrey dental practice pays a remote assistant in India $1,500 a month. Most dental services are exempt, so the practice isn't 90% or more commercial.

• It self-assesses 5% GST: about $75 a month
• It reports it on line 405 if registered, or on Form GST59 if not
• BC PST is separate and can apply to some software and services, so check it too

Example 3: Toronto IT consultancy, developer flown in.
A developer based in India spends two weeks onsite in Toronto. The invoice allocates $3,000 to that onsite work.

• Regulation 105: 15% × $3,000 = $450 withheld, unless the CRA has issued a waiver
• A T4A-NR slip is due by the end of next February
• The India-based work on the same invoice: no withholding, if the allocation is documented

Example 4: Founder with an Indian Pvt Ltd.
A Canadian corporation owns an Indian subsidiary that provides back-office services to it.

• File a T1134 within 10 months of year-end (unless the dormant exemption applies)
• If related-party transactions with all non-residents total more than $1 million, file a T106
• Price the services at arm's length, and keep the documentation

Action checklist

1. List every payment to India from the past 12 months: who, how much, and what for.
2. Check that contracts state where the work is performed. For mixed engagements, allocate and document the fee.
3. Set up Regulation 105 withholding and T4A-NR reporting for any work done in Canada.
4. Work out your commercial-activity percentage. If it's under 90%, self-assess GST/HST on imported services.
5. Pay through banking channels in foreign currency against invoices, and keep the records for the CRA.
6. If you own an Indian company, diarise the T1134 and check whether you hit the T106 threshold.
7. Hiring employees in India (not contractors)? That raises Indian payroll and permanent-establishment questions. Get advice before you convert anyone.
8. Read the 5 November budget for any changes to the rules for business deductions or withholding.

Frequently asked questions

Do I need to withhold tax when I pay a freelancer in India? Not under Regulation 105 if all the work is performed outside Canada. Withholding applies to services rendered in Canada.

Do I issue a T4A-NR to my Indian contractor? Only for services rendered in Canada.

My clinic pays an Indian billing team. Do I owe GST? Possibly. If your business uses the service less than 90% in commercial activities, which is common for medical and dental practices, you generally self-assess GST, or the federal part of the HST, and possibly the provincial part.

Is my Indian subsidiary's income taxed in Canada? If a Canadian corporation owns it, generally not on active business income. Because India has a tax treaty with Canada, that income usually goes into "exempt surplus", and dividends paid from it to the Canadian corporation are generally deductible (ITA s.113(1)(a)). Reporting and transfer pricing still apply. Shares held personally are taxed differently, so get advice for your structure.

Talk it through with us

If your Canadian business pays a team in India and you want to check that the setup is clean, email hello@ledgerbrigade.com or book a free diagnostic call. We'll walk through your payment flows and flag what to fix. This is general guidance only, not preparing or filing returns on your behalf.

What's the hardest part of paying a team in India from Canada?

Disclaimer: This article is general information, not tax or legal advice. It reflects CRA guidance and Indian GST law as at 21 October 2026. Measures in the federal budget on 5 November 2026 may change things. Take advice on your own facts before acting.

Sources

• CRA, IC75-6R2, Required withholding from amounts paid to non-residents providing services in Canada: canada.ca
• CRA, Tax treatment of non-residents who perform services in Canada: canada.ca
• CRA, GST/HST on imports and exports: canada.ca
• CRA, GST/HST rates calculator: canada.ca
• CRA, Information returns relating to foreign affiliates (T1134): canada.ca
• CRA, T106 de minimis policy: canada.ca
• Integrated Goods and Services Tax Act, 2017 (India), s.2(6) and s.16: indiacode.nic.in
• CRA, Small Business Week release (20 October 2026): newswire.ca
• Income Tax Act s.113 (foreign affiliate dividends): laws-lois.justice.gc.ca
• Baker Tilly, Payments to non-residents (Quebec 9%): bakertilly.ca
• BNN Bloomberg, federal budget date (20 October 2026): bnnbloomberg.ca