My understanding is that a US based contractor for a Canadian business is ONLY subject to US income tax (and self-employment taxes) as well as any applicable state and local income taxes on the earned income.
In accordance with the provisions of the Canada-US Tax Convention, if the service is rendered in the US, then the Canada-US Tax Convention would alleviate any right of Canada to tax the income earned by the US contractor and there would be no requirement for Reg 105 withholding.
I hope that was clear.
