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 (Updated Aug 29, 2020):
- Canadian withholding tax guide, May 2012, RBC Investor Services
- Canada Highlights 2012, Deloitte
- UNDERSTANDING FOREIGN WITHHOLDING TAX – A reference guide, iShares
- How to Update Canadian Tax Withholding Information, Fidelity
Many thanks David for info, and Merry Christmas.
John
Welcome.Hope you had a Merry Christmas too !!
Wilma u.s citizen then be subject to capital gains and taxes on dividends AFTER the initial payment to Canada?
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.
John, Please clarify. Submission of the Canadian NR301 form post-January 1, 2013 to a US brokerage will or will not be accepted by Canada?
Submission of that form your broker will be accepted by Canada. My broker did that for me. So check with yours.
Good Luck!
-David
David- does NR301 have to be filed if the Canadian stock is held in an IRA ?
Nope.The form is NOT required for Canadian stocks held in retirement accounts including IRAs. Canada does not charge withholding taxes on stocks held in qualified retirement accounts for US residents.
Hope this helps.
-David