Cross border brokerage/withholding taxes on dividends issues

This is our main tax information forum which deals with topics concerning Canadians living and working in the U.S., U.S. citizens contemplating working in Canada, and all aspects of Canadian and U.S. income tax and related adminstrative issues.

Moderator: Mark T Serbinski CA CPA

Post Reply
bandana
Posts: 10
Joined: Sat Jun 25, 2011 9:41 pm

Cross border brokerage/withholding taxes on dividends issues

Post by bandana » Sun Jan 27, 2013 1:49 pm

I established US tax residency (having moved from Canada) on Jan 1, 2012.

But my Canadian brokerage account was only closed, and assets transferred to their US unit, only in March 2012. During these three months, I have accrued capital gains and dividends from Canadian companies, ostensibly in a Canadian brokerage.

These cap gains and dividends will now have to be reported to the IRS (as I am now a US resident for ta purposes). The dividends have already had Canadian taxes withheld.

1) Should I file a tax return to CRA (to report/recover taxes withheld on dividends for these 3 months?
2) On what forms should I declare these dividends to the IRS, so as to claim the 15% treaty rate?

I had a chat with Mark S. earlier this year to iron out some other issues. But these are new ones that have cropped up since.

Thanks in advance, nelsona, and any others who would be willing to help!

Phil Hogan, CA
Posts: 27
Joined: Fri Jan 08, 2010 12:11 pm
Location: Victoria BC
Contact:

Post by Phil Hogan, CA » Mon Jan 28, 2013 1:49 am

If you were considered a non-resident of Canada for the first 3 months the taxes withheld will be your final Canadian taxes.

The dividends and capital gains will be taxable on your US return and you'll be able to take a credit for the taxes withheld on the dividends via form 1116.

No Canadian tax on the capital gain except for tax on the exit return if applicable (which may change your cost base for US purposes).

Cheers

Phil
Phil Hogan, CA, CPA (Colorado)
Canadian and US Income Tax
http://www.hutcheson.ca/about-us/philip-hogan/
http://xborderpros.com
250-661-9417
Victoria BC

nelsona
Posts: 16082
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona » Mon Jan 28, 2013 11:26 am

More importantly, you need to pay deemed disposition tax on your assets based on their value on jan 1 2012.

You are required to pay flat 15% tax on dividends. Unless you told your broker that you were living in US, there is no way that your dividends were withhedl correctly, so you will need to send a letter to CRA, separate from your departure return (which will only have deemed disposition of investments reported), on which you pay 15% of your dividend income. you can use any tax witheld to offset the tax on your departure return, and simply snd the check for the dividends itself.

As Phils says, the cap gains prtion are not taxable in canada after your deemed disposition date.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

Canadabound
Posts: 21
Joined: Mon Feb 28, 2011 4:22 pm

Post by Canadabound » Mon Jan 28, 2013 5:10 pm

Thanks Phil and Nelsona.. very helpful.

What happens in reverse? Let's say a US citizen moves to Canada and leaves their US dividend-paying stocks in a US-based brokerage firm (cash account), with a US address? Do they have an issue with the IRS, not dissimilar from the issue that the Canada-to-US investor had with CRA? Appreciate your comments.

nelsona
Posts: 16082
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona » Mon Jan 28, 2013 5:31 pm

Not really, because US citizens continue to pay tax on world income, just as if they remained in US. Non-US citizens leaving US would face the problem you are encountering. The ywould fix this using a 104NR.

For Canada, There is no form on which to report NR income that is subject to flat withholding. If if no or incorrect withholding is made, the taxpayer has to fix this by letter.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

Post Reply