A little more than a year ago, on Dec. 22, 2011, the Canada Revenue Agency (CRA) delayed from Jan. 1, 2012, 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.
The CRA is seeking formal validation of tax-treaty rate eligibility from Canadian dividend payers, a change from the previous view that merely residing in such a country was sufficient to qualify. This means that companies that pay dividends to, for example, US shareholders, must have on record information that supports their eligibility for tax treaty benefits.
You may not be required to do anything. In fact it’s likely that your broker has already taken care of the certification on your behalf.
According to the CRA, Canadian dividend-payers are required to have
…recent and sufficient information to establish the identity of the beneficial owner for the purpose of the application of treaty benefits, whether they are resident in a particular country with which Canada has a tax treaty and whether they are eligible for treaty benefits under the tax treaty on the income being paid.
CRA Form NR301, “Declaration of Eligibility for Benefits under a Tax Treaty for a Non-Resident Taxpayer,” details the information the CRA is seeking. Form NR301 is available here. The new rule does not specifically require use or submission of the form in all cases. It simply requires the Canadian dividend payer to have sufficient information, based on the criteria set forth in Form NR301, to support eligibility.
The information requested on Form NR301 includes:
- Legal name of non-resident taxpayer;
- Mailing address;
- Foreign tax identification number (for US residents this is your Social Security number);
- Recipient type and Canadian tax number if you have one (you simply indicate whether you or the entity upon whose behalf your providing certification is an “Individual” or “Corporation” or a “Trust” along with the relevant Canadian identification number);
- Country of residence for treaty purposes;
- Type of income for which the non-resident taxpayer is making the declaration (“Interest, dividends, and/or royalties,” the relevant selection for our purposes, or “Trust income” or “Other,” with instructions to specify “income type”).
- A signature by the non-resident taxpayer or an authorized person of “certification and undertaking.”
According to the CRA, if the verification it seeks hadn’t been received 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.
You may have been asked by your brokerage to fill out and submit CRA Form NR301. On the other hand, many brokerages likely provided certification based on information they already possessed through your existing account information.
“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.
By now you should have received forms directly from transfer agents for all the underlying companies you own requesting information to confirm your tax treaty eligibility. If you haven’t already done so, 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.
Statistics Canada reported Jan. 4 that employment increased by almost 40,000 in December 2012, pushing the jobless rate down 0.1 percentage points to 7.1 percent, the lowest level since December 2008, when the rate was 6.8 percent.
The December 2012 increase, the fourth month of growth in the last five, was all in full-time work.
The consensus expectation was for job growth of around 5,000 for December after a surge of 59,000 in November. Analysts expected unemployment to rise to 7.3 percent.
Canadian employment is up 1.8 percent, or 312,000 jobs–all in full-time work–compared to 12 months ago. Over the same period the total number of hours worked rose 1.6 percent.
Employment in the private sector increased by 59,000 jobs in December, while there was little change in public-sector employment and self-employment.
On a year-over-year basis employment gains among private-sector employees totaled 242,000, or 2.2 percent, while public-sector employment rose by 92,000, or 2.6 percent. The number of self-employed was little changed over the last 12 months.
Among industries, employment increased in transportation and warehousing as well as construction, while there were fewer workers in professional, scientific and technical services; natural resources; and public administration.
The Canadian dollar has closed above parity with the US dollar every trading session since Nov. 19, 2012. The loonie got some uplift from resolution of the US “fiscal cliff” crisis, as the scheduled tax increases and sequestered spending cuts included in that legislated precipice threatened a recession south of the border that would undoubtedly have imperiled Canadian growth in 2013.
Attention will now turn to negotiating away the massive spending cuts that weren’t included in the last-minute deal in Washington, DC. These were kicked two months down the road and will now be wrapped into another debate that promises to be at least as contentious as recent conflicts, one that involves raising the ceiling on US federal government borrowing.
Whatever comes of this imbroglio–marked already by talk of defaulting as a means of enforcing federal spending discipline and by serious contemplation of minting a trillion-dollar platinum coin–it remains the case that Canada’s fiscal, monetary and economic situations provide long-term support for a strong loonie.
There’s no question that whatever threatens US and therefore global economic growth will have a short-term knock-on effect on Canada as well as the value of the Canadian dollar versus the US dollar. But this short-term weakness is premised on the US being the last bastion of safe assets.
Even the threat of default would pull a significant leg of support from the buck and likely send global central banks running even faster to diversify their foreign currency holdings.
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