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First, U.S. shares are usually topic to 30% withholding tax on dividends for non-residents. It doesn’t matter the place agency is situated that gives and holds the brokerage account. Overseas withholding tax is decided based mostly on residency of the payor and the recipient.
Many international locations, together with Canada, have tax treaties with the U.S. to make sure a decreased price of withholding tax. For qualifying Canadian residents, the tax could be decreased to fifteen%. In a registered retirement financial savings plan (RRSP), the tax could also be decreased to 0%.
Qualifying to reclaim U.S. withholding tax
As a way to qualify, an investor has to fill out this type and supply it to their funding agency: Type W-8BEN Certificates of Overseas Standing of Helpful Proprietor for United States Tax Withholding and Reporting (People) and supply it to their funding agency. These types are usually legitimate till the tip of the third calendar 12 months after signing, so must be re-signed each three years.
U.S. inventory dividends paid into an RRSP, registered retirement revenue fund (RRIF) or an identical registered retirement account are usually free from withholding tax for Canadian residents who’ve accomplished W-8BEN types. In non-registered and tax-free financial savings accounts (TFSAs), the decreased 15% price usually applies.
If extra tax is withheld, it may be recovered by submitting a U.S. tax return. Nonetheless, the time and price could also be greater than the potential refund except the withholding tax is critical.
An vital level is that Canadian mutual funds and exchange-traded funds (ETFs) that personal U.S. shares are thought-about Canadian investments and topic to fifteen% withholding tax. In case you personal these in your RRSP, they won’t qualify for the 0% withholding tax price. It’s because the mutual fund or ETF is taken into account the shareholder of the U.S. shares, not you or your RRSP. (Attempt MoneySense’s ETF screener instrument.)
EDP dividends for Canadians
In your case, Wanda, you personal shares of Enterprise Merchandise Companions, which is a grasp restricted partnership buying and selling on the New York Inventory Trade (NYSE). Based mostly on the present quarterly dividend and inventory worth, the annual dividend yield is about 7.6%.
A grasp restricted partnership (MLP) is a U.S. publicly traded entity that’s taxed as a partnership, moderately than an organization. Most shares on U.S. exchanges are firms paying dividends.
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