The Canadian Revenue Agency’s Income Tax Rulings Directorate published a ruling on March 27, 2014 which may have significant implications for franchises. The CRA was asked to consider whether a franchise renewal fee paid by a resident to a non-resident was subject to withholding tax. The CRA determined that, at least in the circumstances it was considering, a cross-border franchise renewal fee is subject to a withholding tax under subsection 212(1)(d)(i) of the Income Tax Act (the "Act"). Subsection 212(1)(d)(i) of the Act provides for an income withholding tax of 25% on all amounts paid or credited to a non-resident person by a resident as, on account or in lieu of payment of, or in satisfaction of "rent, royalty or a similar payment." The terms "rent" and "royalty" are not defined by the Act, but generally speaking, a rent or royalty represents payment made to the owner of property for the right to use the property for a given period of time. The CRA determined that a renewal fee paid by a franchisee to a franchisor for the right to use a franchise in Canada for a given period of time is considered rent, royalty or a similar payment for the purposes of the Act. Therefore section 212(1)(d) applies, and the non-resident recipient of the renewal fee is required to pay a withholding tax.