Who We Help · Fitness Studios · Cross-Border Tax
Franchise royalties, US equipment: cross-border tax for studio owners
A franchised studio wires money to its US franchisor every month — royalty, marketing fund, tech fees — and Canadian law makes the studio withhold tax from most of it: 25 percent by default, 10 under the treaty with the right form on file. Equipment adds a twist owners rarely see coming: finance the treadmills with a US loan and there is usually no withholding at all, lease the same machines and the payments are taxed as royalties. The difference is the paperwork, and it is decidable in advance.
By the AnalytIQ Accounting team · Last reviewed: August 12, 2026
The franchise stack crosses the border every month
Run an F45- or Orangetheory-style franchise from Ontario and three payments go south on a schedule: a royalty — flat weekly or a percentage of gross — a marketing- or brand-fund contribution, and usually a technology fee for the booking and performance-tracking platforms. Because the recipient is a US franchisor, each payment is potentially subject to Part XIII withholding tax, which you must deduct and remit: 25 percent by default, 10 percent under the Canada-US treaty when a Form NR301 declaration sits in your file. The franchisor sets the fees; Canadian law makes collecting the tax your job.
It starts before the doors open. The initial franchise fee is paid first and can itself be a royalty-type payment for rights used in Canada — worth reviewing before signing, both for withholding and because it is amortized for tax rather than deducted in year one.
Sort the payment before you withhold
The fee stack is not one thing, and the tax follows what each payment actually buys. This is the sorting we run when a studio signs:
| What you pay | How it is treated |
|---|---|
| Royalty for the brand and system | Part XIII — withhold 10 percent with treaty documentation, 25 without |
| Marketing- or brand-fund contribution | Follows its character in the agreement — rights-based contributions lean royalty; genuine services performed in the US lean untaxed business profits |
| Launch-team training inside your studio | Services performed in Canada — Regulation 105: 15 percent withheld, reported on T4A-NR |
| Technology and platform fees | Case by case — some software-use payments are treaty-exempt, while franchise-connected rights sit at 10 percent |
| Interest on a US equipment loan | Generally no withholding on arm's-length interest |
| Rent on a US equipment lease | A treaty royalty — the Canada-US definition includes tangible personal property — withheld at 10 percent |
The rhythm around the table is fixed: convert each USD payment on the date it is paid, remit the withholding by the 15th of the following month, and file NR4 slips by March 31. If your agreement says fees must arrive free and clear, the tax is grossed up onto you — the arithmetic is in our guide for cleaning franchisees, and it applies here unchanged.
Equipment financing: the document's character decides the tax
A studio build-out is equipment-heavy — treadmills, rowers, rigs, screens — and US franchisors often steer new owners into a US vendor-finance program. Whether Canada taxes those monthly payments turns on what the contract legally is. A loan or conditional sale produces interest, and arm's-length interest paid to a US lender generally crosses the border with no Canadian withholding. A true lease produces rent for property used in Canada, which Part XIII catches at 25 percent and the treaty reduces to 10 — because the treaty's royalty definition, unusually, includes payments for the use of tangible personal property. Two offers with identical monthly payments can differ by the entire withholding, so we read the finance documents before anyone signs.
The import itself is the simpler half. Commercial equipment entering Canada pays 5 percent GST at the border, recoverable as an input tax credit — memberships are taxable, so the studio is registered — provided the entry names your company as importer of record. Duty rests on tariff classification and where the machines were actually manufactured, which for fitness equipment is often Asia rather than the US brand's home state.
Build the border into the monthly close
A franchised studio already runs deferred membership revenue, instructor payroll and franchisor reporting every month; the cross-border layer belongs in that same rhythm, not in a March panic. We code the withholding accounts when the franchise agreement is signed, keep the NR301 current, reconcile NR4 totals to the ledger, and characterize any new fee line on the franchisor's invoice before the first payment leaves.
Skipping it is the expensive route: CRA assesses the studio for un-withheld tax plus a 10 percent penalty and interest, long after the money is gone. The domestic side — HST on memberships, instructor classification, the corporate return — connects through our fitness studio tax services, with the treaty work at cross-border tax services. Boutique, cloud-first, fixed fees quoted after a discovery call.
Source: CRA — T4061, NR4: Non-Resident Tax Withholding, Remitting, and Reporting.
Common questions.
Our franchisor invoices royalty, marketing fund and tech fees together. Do we withhold on the total?
No — each component follows its own rule, from 10 percent on the royalty to nothing on genuine US-performed services. We split the invoice by what each line buys, because one blended rate is wrong in both directions.
Do we really withhold tax on equipment lease payments to a US lessor?
Yes, if it is a true lease: rent for equipment used in Canada is caught by Part XIII, and the treaty reduces it to 10 percent because its royalty definition includes tangible personal property. A loan or conditional sale produces interest instead, which generally crosses with no withholding.
We opened two years ago and have never withheld on royalties. What now?
The studio, as payer, is liable for the un-withheld tax plus a 10 percent penalty and interest, so the exposure grows with every payment. Quantifying it and correcting course — including a voluntary disclosure where it fits — is far cheaper than waiting for CRA to match your US-bound payments.
Related reading
Franchise fees south, no surprises north.
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