Hello,
This is probably a trivial question but I can't seem to get a straight answer from anyone on this.
If a US citizen living in Canada has a brokerage account with US stocks and ETFs in it, and has submitted a W9 to open the account, is there still a 15% tax withholding on dividends?
If so, what to non-US citizens do with this 15% withholding? would the non-US citizen, resident of Canada just claim a FTC on his Cdn tax return? Even though he could have filed a 1040NR to get all the withholding tax back (if the total dividends are below 1 personal exemption).
The reason I ask, is I'm about to have a US source dividend, it will probably get taxed at an average rate of something below 15% - can I just claim the Canadian FTC on whatever the US taxes me?
Thanks!
US dividends and tax withholding
Moderator: Mark T Serbinski CA CPA
There is no withholding if a W-9 has been submitted by a US prson. That is one of the main purposes of a W-9. It says it rignt on the form: "I am not subject to backup withholding because:..."
A non-US citizen, resident in Canada woul dNOT recoup the 15%. NRs report dividends like this on thge NEC portion of the 1040NR, not page 1. The dividends they get from brokjerage accounts are NOT effectively connected income, so are not entitled to graduated tax and exemptions, deductions., etc. They are simply flat taxed. One would use 1040NR to recoup, say, any extra tax taht had been withheld (some non-Cdns, or those who fail to file a W-8 or W-9 pay 30% on dividends, or sometimes no tax is weitheld, and then 1040NR is used to pay the 15%).
The 15% US tax is then used on your Cdn return.
If you are a US taxpayer (a 1040 filer), you would use whatever rate your 1040 comes out with for your dividend tax. What is or is not withheld is meaningless.
A non-US citizen, resident in Canada woul dNOT recoup the 15%. NRs report dividends like this on thge NEC portion of the 1040NR, not page 1. The dividends they get from brokjerage accounts are NOT effectively connected income, so are not entitled to graduated tax and exemptions, deductions., etc. They are simply flat taxed. One would use 1040NR to recoup, say, any extra tax taht had been withheld (some non-Cdns, or those who fail to file a W-8 or W-9 pay 30% on dividends, or sometimes no tax is weitheld, and then 1040NR is used to pay the 15%).
The 15% US tax is then used on your Cdn return.
If you are a US taxpayer (a 1040 filer), you would use whatever rate your 1040 comes out with for your dividend tax. What is or is not withheld is meaningless.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
the 15% (or wgatever was determine on your 1040) would be used as a foreign tax credit on your Cdn tax return.
So, if you have US stocks that are issuing dividends, you will be withheld either:
A: 15% (if you have submitted a W-8),
B: 0%( if you have submitted a W-9), or
C: 30%, (if you haven't provided paperwork).
If you have submitted a W-9 and are not going to file a 1040 becuase you are nota US taxpayer, you should probably get in touch with broker and submit a w-8ben instead. Otherwise, you are stck filing a 104NR to pay your correct 15%.
So, if you have US stocks that are issuing dividends, you will be withheld either:
A: 15% (if you have submitted a W-8),
B: 0%( if you have submitted a W-9), or
C: 30%, (if you haven't provided paperwork).
If you have submitted a W-9 and are not going to file a 1040 becuase you are nota US taxpayer, you should probably get in touch with broker and submit a w-8ben instead. Otherwise, you are stck filing a 104NR to pay your correct 15%.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Hi nelsona,
Thanks so much - this answers my question. I am a US citizen, so the W9 wasn't a mistake. I was just wondering if I claim close to 15% on these US source dividends, would the CRA come back and say that it is too much and I should have taken a treaty position to get it reduced. Instead the CRA will probably be happy that I didn't pay 15%. I think in my particular case, TaxACT is telling me that these dividends will cost me about 11% average tax.
I appreciate your time!
Thanks so much - this answers my question. I am a US citizen, so the W9 wasn't a mistake. I was just wondering if I claim close to 15% on these US source dividends, would the CRA come back and say that it is too much and I should have taken a treaty position to get it reduced. Instead the CRA will probably be happy that I didn't pay 15%. I think in my particular case, TaxACT is telling me that these dividends will cost me about 11% average tax.
I appreciate your time!
I'm not really understanding your question. Since you are a US citizen, You don't have a treaty position: you MUST file a US tax return, that will determine you tax-rate, including dividend income. Given that these dividends are likely qualifying dividends, and you'll be using FEIE, there is hardly a chance that your rate will be anywhere near 15%,
If, somehow, that rate is more than 15%, then you will be limited to claiming 15% on your Cdn reurn, and will have to seek re-sourcing 1116 for reducing the IRS tax to 15%.
If, somehow, that rate is more than 15%, then you will be limited to claiming 15% on your Cdn reurn, and will have to seek re-sourcing 1116 for reducing the IRS tax to 15%.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
I was worried because I remember hearing that the amount I'm allowed to claim on the Canadian return is limited to the amount a non-USC would have to pay. Since I didn't understand the NEC income concept, I thought that a small amount of dividends, say less than a personal exemption, would mean that a non-USC would pay $0 US tax. So, I thought that if I claim a non-zero FTC on the Canadian return, the CRA would reject it.
I will double check my 1116 calculations, maybe I missed something if ~11% sounds high. As you might remember from another post, the line 18 adjustment threw me off once - and I do have some Cdn source long-term gains this year.
Thanks again!
I will double check my 1116 calculations, maybe I missed something if ~11% sounds high. As you might remember from another post, the line 18 adjustment threw me off once - and I do have some Cdn source long-term gains this year.
Thanks again!
Take another look at your dividends treatment on your 1040. If they are qualified dividends, IRS tax is limited to 15% (this has nothing to do with non-resident), and if you are in the 15% tax bracket, they are 0%.
Because dividend tax is calculated separately from your other income, you should probably use 15% or 0% (depending on your income) for your qualified dividends, and your effective tax-rate for the non-qualified dividends.
Example: you are in the 25% tax bracket. You have $500 of qalified US dividends and $500 of non-qulaified. You do your return and come up with an effective rate of 11%.
Your Cdn return woiuld report $1000 of dividends, you would use $1000 as foreign income, and $130 as your US tax (15% on $500, plus 11% on the other $500).
This would give youa alittle more credit than using a straight 11%. I would not think that CRA would give you trouble on this.
Because dividend tax is calculated separately from your other income, you should probably use 15% or 0% (depending on your income) for your qualified dividends, and your effective tax-rate for the non-qualified dividends.
Example: you are in the 25% tax bracket. You have $500 of qalified US dividends and $500 of non-qulaified. You do your return and come up with an effective rate of 11%.
Your Cdn return woiuld report $1000 of dividends, you would use $1000 as foreign income, and $130 as your US tax (15% on $500, plus 11% on the other $500).
This would give youa alittle more credit than using a straight 11%. I would not think that CRA would give you trouble on this.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
I'll have a look at my 1116 more closely - I haven't filed my Canadian taxes yet so the info in 1116 is just an estimate.
I think something isn't quite adding up. The software is adjusting line 18 for me, since I have some Canadian stocks at a long term gain. When I adjust 1a by the corresponding amount - it takes it, but it seems I need to override 3d to the non-adjusted amount. This might be why I'm not getting the expect US dividend rate (ie. leftover because 1116 didn't reduce it). The software equates line 1a to 3d on form 1116.- I don't think it should because then I miss out on some of my standard deduction.
Probably another topic. If I override 3d to the non-adjusted amount for passive limit income - I get the 15% for the remaining dividend.
Thanks for your help.
I think something isn't quite adding up. The software is adjusting line 18 for me, since I have some Canadian stocks at a long term gain. When I adjust 1a by the corresponding amount - it takes it, but it seems I need to override 3d to the non-adjusted amount. This might be why I'm not getting the expect US dividend rate (ie. leftover because 1116 didn't reduce it). The software equates line 1a to 3d on form 1116.- I don't think it should because then I miss out on some of my standard deduction.
Probably another topic. If I override 3d to the non-adjusted amount for passive limit income - I get the 15% for the remaining dividend.
Thanks for your help.