Who We Help · Hotels and Motels · Cross-Border Tax
Hotel cross-border tax: OTA invoices, brand royalties, and US owners
An Ontario hotel or motel usually sends money to the US three ways, and each stream has a different rule: OTA commissions leave with no withholding at all, brand-flag royalties must leave with 10 percent held back under the treaty, and dividends to US-resident shareholders leave with 15. The costly mistakes come from treating the three streams the same — or assuming the platform or the franchisor is handling any of it. Nobody handles it but the hotel, so we build it into the monthly close.
By the AnalytIQ Accounting team · Last reviewed: August 12, 2026
OTA commissions: no withholding, but the books can still go wrong
Commissions paid to Expedia or Booking.com are arm's-length service fees for booking work performed outside Canada, so they are not Part XIII amounts and there is nothing to withhold — and because the platform never sets foot here, Regulation 105 stays out of it too. The GST self-assessment rules on imported services also generally stand down, because hotel rooms are taxable supplies and the commission is consumed in that commercial activity.
The traps are in the ledger, not the withholding tables. Under the merchant model the OTA collects from the guest and wires you a net amount, but HST is owed on the full room folio, not on the deposit that lands — the commission is an expense, never a revenue reduction. Under the agency model the commission invoice arrives in USD and needs converting at the invoice date, and note the payee: Booking.com bills from a Dutch entity, so if a treaty question ever does arise, it is not the US treaty that answers it.
The flag's fee stack is not one rate
A US brand licence generates several distinct payment lines each month, and Canadian withholding treats them differently. Royalties for the brand fall under Part XIII at 25 percent by default, 10 percent under Article XII of the Canada-US treaty once a Form NR301 from the franchisor sits in your file. You remit by the 15th of the month after each payment and file NR4 slips with a summary by March 31.
| Fee line | What it pays for | Border treatment |
|---|---|---|
| Ongoing royalty on room revenue | The right to fly the brand | Part XIII — 25 percent, or 10 with NR301 documented |
| Marketing and ad fund | Whatever the agreement says it buys | Rights lean toward Part XIII; genuine services performed abroad lean out |
| Reservation system and loyalty fees | Central platforms run outside Canada | Usually services rather than royalties — we review the contract line by line |
| Training and quality visits in Canada | Franchisor staff on your property | Regulation 105 — 15 percent withheld, reported on T4A-NR |
| Initial or relicensing fee | Joining or renewing the flag | Characterized before the wire goes; amortized as an intangible for income tax |
Most flag agreements demand payments free and clear of withholding, which makes the tax your cost: a 5 percent royalty delivered intact really costs 5.56 percent of room revenue at the documented treaty rate and 6.67 undocumented. Missed remittances land on the hotel as the full un-withheld tax plus a 10 percent penalty, and they surface in diligence the day you refinance or sell.
US-resident owners: both countries file, every year
Family-held motels often have a shareholder who moved south or holds US citizenship, and that changes nothing for the corporation's T2 — but a great deal for that person. A US person holding shares of a Canadian corporation typically files Form 5471, works through the GILTI rules on the motel's retained earnings, and reports Canadian bank accounts on an FBAR, with IRS penalties for Form 5471 running steep enough that guessing is not a strategy. Dividends paid to a US-resident shareholder leave Canada with 15 percent treaty withholding and one more NR4 slip. Where a US corporation runs the property directly as a branch, add a Canadian branch-profits layer on top of the T2 — the treaty trims it to 5 percent after an exemption for the first 500,000 dollars of cumulative branch profits.
Selling with a non-resident on title
Hotel land and buildings are taxable Canadian property, so a non-resident vendor needs a section 116 clearance certificate before closing — otherwise the buyer must hold back 25 percent of the price, and up to 50 on the depreciable building portion, until CRA clears it. Layer on CCA recapture from decades of building claims and the US return reporting the same gain with foreign tax credits, and the sale becomes a file you open months before listing, not at closing. We run the withholding calendar, the owner filings and the exit plan as one system alongside hotel and motel tax services, with the full Canada-US practice at cross-border tax services.
Source: CRA — T4061, NR4 Non-Resident Tax Withholding, Remitting, and Reporting.
Common questions.
Do we withhold tax on Expedia or Booking.com commissions?
No. Commissions for booking services performed outside Canada are not Part XIII amounts, so nothing is withheld. The withholding duty attaches to brand royalties, not platform commissions — the OTA risk is booking net deposits as revenue and shorting your HST.
Our US franchisor has never sent an NR301. What do we do?
Without it you should be remitting at 25 percent rather than the 10 percent treaty rate, which makes any gross-up clause dramatically more expensive. We chase the form, and on renewal we push to make its delivery a contractual obligation.
One of our shareholders is a US citizen. Does the hotel corporation change anything?
The T2 is unaffected, but that shareholder likely owes Form 5471, GILTI analysis and FBAR reporting every year, and dividends to them carry 15 percent Canadian withholding with an NR4. We coordinate both sides so the two returns tell one story.
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