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Deadline for Treaty Rate Eligibility Extended

By David Dittman on December 29, 2011

The Canada Revenue Agency (CRA) has delayed until Jan. 1, 2013, the effective date of new rules that require certification by non-Canadian-resident shareholders of Canadian companies that they are eligible for tax treaty benefits, including a reduced withholding rate on dividends paid by Canadian companies.

In other words, it will be business as usual for US investors receiving Canadian dividends in 2012.

We have made several inquiries of the CRA, through formal channels reserved for media as well as via the normal channels reserved for the public, regarding an official statement about this extension. As of Thursday morning, Dec. 29, the entirety of the CRA’s statement on the matter is contained about a third of the way this web page, under the subhead “Eligibility for treaty benefits.” In a text box titled “Important Notice” the CRA explains that under its new regime a “payee’s name and address may no longer be the only information required to establish that treaty benefits apply.” (Emphasis is in the original.) It also notes, “The CRA is extending this transitional period until December 31, 2012.”

As we first reported Dec. 6, the CRA is seeking formal validation of tax-treaty rate eligibility, a change from the previous view that merely residing in such a country was sufficient to qualify. If the CRA is not provided the verification it seeks by Jan. 1, 2013, it will withhold from dividends paid to US owners of shares in Canada-based companies at a rate of 25 percent rather than 15 percent, as is contemplated by the Convention Between the United States of America and Canada with Respect to Taxes on Income and Capital, or the US-Canada tax treaty, and accompanying conventions and explanatory notes.

If you’re an investor who holds Canada-based dividend-paying corporations in accounts with major brokerages such as Charles Schwab, Fidelity and including niche brokerages such as Pennaluna & Company, it’s still unlikely you’ll be affected by this new rule. According to at least one major, Charles Schwab, US investors who hold account with brokerages won’t have to take any action yet.

On Apr. 19, 2011, the CRA introduced new verification forms to be completed by non-Canadian resident shareholders in Canada-based companies who live in countries with whom Canada has negotiated a tax treaty. As it now stands these forms–for individuals it’s Form NR301, Declaration of Eligibility for Benefits under a Tax Treaty for a Non-Resident Taxpayer–are to be completed before Jan. 1, 2013. But the new rule does not specifically require use or submission of the form.

US firms would prefer to maintain current procedures for verification through US-based Depositary Trust Corporation (DTC), for example, that utilizes their own account opening and certification procedures and the documentation resulting therefrom.

“Registered shareholders”–the stock you own is registered in your name on the underlying company’s books, which is kept by the company’s transfer agent, and you’re in physical possession of a certificate that represents your ownership interest–will likely have to complete forms for submission to your respective underlying companies’ transfer agent.

You’re going to receive forms directly from transfer agents for all the underlying companies you own requesting information to confirm your tax treaty eligibility. Registered shareholders should complete and remit these forms as soon as possible. If you’re a registered shareholder of any Canada-based dividend-paying corporation, whether it was ever a trust or not, complete any such forms if they’ve already been forwarded to you.

If you are a registered shareholder of a dividend-paying Canadian corporation and haven’t received notification from it, it might be a good idea to send an e-mail or phone an investor relations representative at the relevant company.

But the bottom line is the new CRA rules won’t take effect until Jan. 1, 2013, meaning you and your brokerage will have all of 2012 to get your paperwork together.

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  1. avatar
    joanne bertini Reply May 22, 2012 at 10:46 AM EST

    Our trust has manulife shares in Chas schwab and my sister has her manulife shares held individually. She had received form NR301 in the mail with instruction to return before 6/1/2012. I have not received such a form and do not want to exceed return date. I called both chas and manulife with out any solid info. PLease explain.
    Thank you, Joanne Bertini

    • David Dittman
      David Dittman Reply May 22, 2012 at 10:59 AM EST

      Hi Ms. Bertini,

      It seems to me that Manulife’s transfer agent is just trying to get out ahead of the game a bit to avoid a huge crunch before the official Canada Revenue Agency deadline. This probably has to do with the fact, too, that your sister holds her shares rather than deposit them with a custodian such as Charles Schwab.

      Schwab, because it probably has sufficient information to provide the CRA with such verification without your involvement, may not even contact you to fill out a form. In other words, Schwab will manage the certification process on your behalf.

      Thanks for writing.

      Best regards,


      • avatar
        Catherine Ross Reply December 27, 2012 at 4:23 PM EST

        Today Charles Schwab sent email notification that NR301, 302, 303 are required ASAP for each account.