First, U.S. shares are typically 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 primarily based on residency of the payor and the recipient.
Many nations, together with Canada, have tax treaties with the U.S. to make sure a lowered charge of withholding tax. For qualifying Canadian residents, the tax will be lowered to fifteen%. In a registered retirement financial savings plan (RRSP), the tax could also be lowered to 0%.
Qualifying to reclaim U.S. withholding tax
With a purpose to qualify, an investor has to fill out this type and supply it to their funding agency: Kind W-8BEN Certificates of Overseas Standing of Useful Proprietor for United States Tax Withholding and Reporting (People) and supply it to their funding agency. These kinds are typically legitimate till the top of the third calendar 12 months after signing, so should be re-signed each three years.
U.S. inventory dividends paid into an RRSP, registered retirement earnings fund (RRIF) or the same registered retirement account are typically free from withholding tax for Canadian residents who’ve accomplished W-8BEN kinds. In non-registered and tax-free financial savings accounts (TFSAs), the lowered 15% charge typically applies.
If extra tax is withheld, it may be recovered by submitting a U.S. tax return. Nonetheless, the time and value 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 the event you personal these in your RRSP, they won’t qualify for the 0% withholding tax charge. It is because the mutual fund or ETF is taken into account the shareholder of the U.S. shares, not you or your RRSP. (Strive 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). Primarily based 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, fairly than an organization. Most shares on U.S. exchanges are firms paying dividends.
