New Requirements for Canadian Tax Withholding for US Investors

The current Canadian Withholding Tax Rate for Dividends for US-based investors is 15.0% for stocks held in taxable accounts. This is a reduced tax rate since the actual tax rate on dividends paid by Canadian corporations to non-residents is 25%. Due to a tax-treaty between the US and Canada, the reduced tax rate of 15% is applied to US investors.

Canada does not apply withholding taxes on dividends paid by Canadian corporations to US investors holding stocks in their retirement accounts such as IRAs. This is due to a special exemption in the tax treaty between the two countries.

Effective January 1, 2013 the Canada Revenue Agency (CRA) is implementing new requirements for receiving the reduced withholding tax rates on Canadian-sourced income payments. In order to receive the reduced tax rate, US investors have to file the NR301 form – Declaration of Eligibility for Benefits under a Tax Treaty for a Non-resident Taxpayer – with  the CRA through their brokers before Jan 1, 2013. Otherwise, US investors will be subject to the regular 25% tax rate.

More info on this form including FAQs can be found at the CRA website here.

Additional resources:

Canadian withholding tax guide, May 2012, RBC Investor Services

Canada Highlights 2012, Deloitte

4 Comments

  1. Wilma u.s citizen then be subject to capital gains and taxes on dividends AFTER the initial payment to Canada?

  2. Nope. There is only withholding tax that needs to be paid to Canada and that applied to dividends only not capital gains.To get the reduced rate investors have to fill up that form mentioned. You will be subject to capital gains taxes by the US though just like any other country stock.

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