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Sunday, July 14, 2024
HomeMoney SavingU.S. withholding tax in an RRSP for Canadians

U.S. withholding tax in an RRSP for Canadians


First, U.S. shares are typically topic to 30% withholding tax on dividends for non-residents. It doesn’t matter the place the agency is situated that gives and holds the brokerage account. International withholding tax is set 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

So as to qualify for the decrease price, an investor has to fill out the Type W-8BEN Certificates of International Standing of Helpful Proprietor for United States Tax Withholding and Reporting (People) and supply it to their funding agency. These types are typically legitimate till the tip of the third calendar yr 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, because the U.S. acknowledges the tax-deferred standing of the accounts. In non-registered and tax-free financial savings accounts (TFSAs), the decreased 15% price typically applies. 

If extra tax is withheld, it may be recovered by submitting a U.S. tax return. Nevertheless, the time and value could also be greater than the potential refund except the withholding tax is critical.

An essential level is that Canadian mutual funds and exchange-traded funds (ETFs) that personal U.S. shares are thought of Canadian residents and are topic to fifteen% withholding tax. In case you personal these in your RRSP, they won’t qualify for the 0% withholding tax price. It is 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 software.) 

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 Alternate (NYSE). Primarily based on the present quarterly dividend and inventory value, 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, reasonably than an organization. Most shares on U.S. exchanges are firms paying dividends. 

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