Ernest Fenwick MacIntosh, 71, was arrested at a hotel in Lalitpur, a suburb south of the capital, Kathmandu.
He was ordered detained by the district court until the charges could be further investigated, Lalitpur's police chief Pushpa Ranjit said.
MacIntosh arrived in Nepal on a tourist visa in August 2014, and was a frequent visitor to the children's shelter where the boy lived, and they met there, police said. They also said that Macintosh has been accused of threatening the boy.
The Himalayan Times quoted a spokesperson with the Metropolitan Police Range in Jawalakhel as saying the alleged incident at the hotel occurred on Dec. 13.
The newspaper report said police received a complaint from the family of the alleged victim on Dec. 19 that a Canadian tourist lured him into a room at a guest house.
Police declined to provide further details because the case involves a minor, however, they said they were trying to determine whether there might be other alleged victims.
If convicted, MacIntosh could face up to 10 years in jail.
In 2013, an Ernest Fenwick MacIntosh had 17 child sex offence convictions in Nova Scotia quashed after the Supreme Court of Canada ruled his case took too long to go to trial.
He was accused of sexually abusing boys in Cape Breton in the 1970s and the allegations surfaced in 1995, when he was living in India.
But he wasn't extradited until 2007, and the first of his two trials in Nova Scotia didn't start until 2010. His convictions were quashed in April 2013.
A Foreign Affairs spokesman in Ottawa said department officials were aware of the situation in Nepal, but did not provide any other details.
With files from the Canadian Press