First, U.S. stocks are generally subject to 30% withholding tax on dividends for non-residents. It does not matter where the firm is located that offers and holds the brokerage account. Foreign withholding tax is determined based on residency of the payor and the recipient.
Many countries, including Canada, have tax treaties with the U.S. to ensure a reduced rate of withholding tax. For qualifying Canadian residents, the tax can be reduced to 15%. In a registered retirement savings plan (RRSP), the tax may be reduced to 0%.
Qualifying to reclaim U.S. withholding tax
In order to qualify for the lower rate, an investor has to fill out the Form W-8BEN Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals) and provide it to their investment firm. These forms are generally valid until the end of the third calendar year after signing, so need to be re-signed every three years.
U.S. stock dividends paid into an RRSP, registered retirement income fund (RRIF) or a similar registered retirement account are generally free from withholding tax for Canadian residents, as the U.S. recognizes the tax-deferred status of the accounts. In non-registered and tax-free savings accounts (TFSAs), the reduced 15% rate generally applies.
If excess tax is withheld, it can be recovered by filing a U.S. tax return. However, the time and cost may be more than the potential refund unless the withholding tax is significant.
An important point is that Canadian mutual funds and exchange-traded funds (ETFs) that own U.S. stocks are considered Canadian residents and are subject to 15% withholding tax. If you own these in your RRSP, they will not qualify for the 0% withholding tax rate. This is because the mutual fund or ETF is considered the shareholder of the U.S. stocks, not you or your RRSP. (Try MoneySense’s ETF screener tool.)
EDP dividends for Canadians
In your case, Wanda, you own shares of Enterprise Products Partners, which is a master limited partnership trading on the New York Stock Exchange (NYSE). Based on the current quarterly dividend and stock price, the annual dividend yield is about 7.6%.
A master limited partnership (MLP) is a U.S. publicly traded entity that is taxed as a partnership, rather than a corporation. Most stocks on U.S. exchanges are corporations paying dividends.
Hi Jason,
If I invest in VFV etf inside an RRSP account, do I need to complete the W-8BEN Form? Isn’t it true that I only need to complete the W-8BEN Form if I invest in VOO etf inside an RRSP account?
Thank you!
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