Withholding on Canadian dividends?


J

John Levine

I own stock in three Canadian banks, BMO, CM, and RY. (If you looked
at their dividend yield, you'd own them, too.)

The BMO and CM stocks are in my IRA. They pay the dividends like any
other dividend, the full amount converted from CAD to USD. I bought
the RY stock last year in my taxable account, and they're withholding
about 10% for Canadian tax. Huh? I thought that under the US/Canada
tax treaty there's no dual taxation. Since an IRA is not exempt in
Canada, shouldn't they either take tax out on all of them or none of
them?

I asked the broker (Vanguard) who sent me a form answer saying,
basically, sometimes they do that, not our problem.

R's,
John

PS: I realize I can get credit for it on form 1116, but then my tax
accountant will charge me for yet another form.
 
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A

Alan

I own stock in three Canadian banks, BMO, CM, and RY. (If you looked
at their dividend yield, you'd own them, too.)

The BMO and CM stocks are in my IRA. They pay the dividends like any
other dividend, the full amount converted from CAD to USD. I bought
the RY stock last year in my taxable account, and they're withholding
about 10% for Canadian tax. Huh? I thought that under the US/Canada
tax treaty there's no dual taxation. Since an IRA is not exempt in
Canada, shouldn't they either take tax out on all of them or none of
them?

I asked the broker (Vanguard) who sent me a form answer saying,
basically, sometimes they do that, not our problem.

R's,
John

PS: I realize I can get credit for it on form 1116, but then my tax
accountant will charge me for yet another form.
The treaty has clauses that prevent dual taxation. In the case of
dividends, Canada will withhold. In your case... the 10% withheld on RY.
You must report the dividend on your US return. You can apply for a
foreign tax credit to eliminate double taxation. You can elect to deduct
the foreign taxes paid on Schedule A in lieu of the credit.
The instructions for Line 47 of the 1040 tell you when you may take the
credit without the use of the 1116. One of the requirements is that the
dividend and foreign tax paid gets reported to you on a 1099-DIV or your
broker's Consolidated Statement that contains the 1099-DIV.

Any foreign taxes paid on securities owned inside your IRA is just the
cost of doing business. There is no deduction or credit available for
any tax withheld on the foreign dividends.
 
R

removeps-groups

I own stock in three Canadian banks, BMO, CM, and RY.  (If you looked
at their dividend yield, you'd own them, too.)

The BMO and CM stocks are in my IRA.  They pay the dividends like any
other dividend, the full amount converted from CAD to USD.  I bought
the RY stock last year in my taxable account, and they're withholding
about 10% for Canadian tax.  Huh?  I thought that under the US/Canada
tax treaty there's no dual taxation.  Since an IRA is not exempt in
Canada, shouldn't they either take tax out on all of them or none of
them?

I asked the broker (Vanguard) who sent me a form answer saying,
basically, sometimes they do that, not our problem.
If the foreign tax paid on the dividends of the stock in the taxable
accounts are less than $300 if single/MFS, or $600 if MFJ then you can
just take the full amount of the credit without form 1116.
 
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A

Alan

If the foreign tax paid on the dividends of the stock in the taxable
accounts are less than $300 if single/MFS, or $600 if MFJ then you can
just take the full amount of the credit without form 1116.
Only if all of his foreign source income is from interest and dividends
and it is reported on a 1099-DIV or K-1.
 

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