Foreign tax witholding in an IRA

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Canadabound
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Joined: Mon Feb 28, 2011 4:22 pm

Foreign tax witholding in an IRA

Post by Canadabound »

Hello:

I am a Canadian resident with an IRA. I own Canadian dividend-paying stocks, and it irks me that thaty are subject to a 15% witholding tax. My questions are as follows:

1. Should a tax sheltered plan be subject to such taxation?

2. If so, how can I get this 15% back?

Thanks for the help!
nelsona
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Location: Nowhere, man

Post by nelsona »

There are two ways, one hard, one easy.

1. hard. Convince the US brokerage that you are a Cdn resident, and that you should not be subject fo rtax.

2. Easy. Just include the tax with your other Cdn tax that you remit all year. It is Cdn tax that was withheld from you after all, so it is just like the tax you had withheld from any other Cdn-sourced income.
It will be refunded to you at tax time.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Canadabound
Posts: 21
Joined: Mon Feb 28, 2011 4:22 pm

Post by Canadabound »

Thank you for your response. So, then technically speaking, I am getting the net benefit of (85%) of the dividend tax-deferred (under the tax-umbrella of the IRA), but receiving 15% of the dividend outside my IRA (wiithout paying early withdrawal penalty or taxation). Is that a "backdoor" IRA withdrawal, without the taxation? I think I like it, if so!

Last question, if you would. My husband (US resident and citizen) is still in the US, with no plans to move here. He also has an IRA that owns Canadian dollar dividend-paying stocks, subject to the same witholding. He does not file Canadian taxes, obviously. Can he get this 15% Canadian witholding back as well?

Thank you very much for your help!
nelsona
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Post by nelsona »

I guess he could, but not by filinga return, he would have to file an NR-7-R for a refund.
I would think it better for for him if he would go the hard route and have the US firm recognize the treaty provision that exempts IRA from Cdn taxation.

As to using the easy way, that is basically what the result is: Untaxed withdrawal from IRA.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
nelsona
Posts: 18314
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

Note that the refund might go to the brokerage,and back intio his account, the way it should. IRAs are entities, so tax incorrectly withheld from IRA should go back into IRA.

In your case, CRA may do the same when they analyze it.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Canadabound
Posts: 21
Joined: Mon Feb 28, 2011 4:22 pm

Post by Canadabound »

Thank you, very much. Makes sense
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