# 35% Withholding Tax?



## tendim (Nov 18, 2010)

G'day.

I recently received a dividend on WPZ and SXL, both of which trade in the US and are held in a non-registered account. When I look at the total amount withheld for those under the heading of "non-resident tax" the amount withheld is 35%, not 15% as it is on my other US securities.

Can anyone suggest why these are being subjected to a 35% tax, and not 15%?

Thanks,
-10d


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## gibor365 (Apr 1, 2011)

tendim said:


> G'day.
> 
> I recently received a dividend on WPZ and SXL, both of which trade in the US and are held in a non-registered account. When I look at the total amount withheld for those under the heading of "non-resident tax" the amount withheld is 35%, not 15% as it is on my other US securities.
> 
> ...


Check if they are ADR or not. If yes, you gonna pay withholding tax of country to which they belong. For example I own CEL that traded on NASDAQ, ut company located in Israel, so i get charged withholding tax 20% (it still OK as CEL pays about 10% dividend).


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## warp (Sep 4, 2010)

Thats the proper answer....It depends on where the company is domiciled.

All stocks that pay divs will withhold based on the tax treaty that exists between the countires involved.

For instance, Switzerland witholds 35%....Spain, ( unless Im wrong).. 19%
The US 15 % ( if you fill in the forms at your brokerage).....and the UK withholds ZERO...( of course I believe they take a tax in the UK right off the top of dividnds , BEFORE you get paid.

Make sure when you file your taxes next year you use the deduction for "foreign taxes withheld"..the amount will appear on your T5......you will be able to deduct any foreign taxes paid from canadian taxes otherwise payable....this makes sure you are not taxed twice on the same income.

good luck


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## tendim (Nov 18, 2010)

gibor said:


> Check if they are ADR or not. If yes, you gonna pay withholding tax of country to which they belong.


Thanks.

After some digging I found out what an ADR is, but how do I determine if a company is an ADR or not?

Thanks.
-10d


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## CanadianCapitalist (Mar 31, 2009)

WPZ appears to be a Limited Partnership. I looked into the taxation of these things for a friend. I still don't understand how the taxes on LPs held by Canadians in taxable accounts are supposed to work.

The withholding tax on distributions is 35%. Part of it is income and the rest is ROC but the withholding tax is charged on the entire distribution. 

Can a Canadian investor get foreign income tax credit for the entire amount? If so, how is it divided up because the distributions are part income and part ROC? How does an investor calculate ACB?

Sorry, the answer to OP's question: 35% is the withholding tax rate on Limited Partnerships whether you hold these securities in taxable or RRSP accounts. The 15% withholding tax rate only applies to dividends.


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## tendim (Nov 18, 2010)

CanadianCapitalist said:


> Sorry, the answer to OP's question: 35% is the withholding tax rate on Limited Partnerships whether you hold these securities in taxable or RRSP accounts. The 15% withholding tax rate only applies to dividends.


Thanks CC. Holding an LP seems like an administrative nightmare, and the benefits of the stable (and increasing) "dividend" are outweighed by the 35% withholding tax. Can you (or anyone) think of any reason why a Canadian should hold a US LP in their portfolio?

Thanks.
-10d


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## CanadianCapitalist (Mar 31, 2009)

tendim said:


> administrative nightmare...


Funnily, "nightmare" is I said these things were to my friend as well! 

My understanding of MLPs is that they flow through their income to investors. Whereas corporations pay out dividends *after* paying income taxes. That's why the tax treatment is different. Of course, for Canadian investors, the analysis is complicated by withholding taxes. Since, I don't understand the full implications of holding MLPs in taxable accounts, it's hard to answer the question on whether withholding taxes negate the advantage of distributions from MLPs.


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## warp (Sep 4, 2010)

I have always wanted to buy several US LP's but never have due to the high tax withholding 

There are several ETF's that you can buy in the US that hold LP's
( limited partnerships)


Unless I am wrong here....the "dividends/distributions" paid out by the ETF will be taxed at 15% , since the ETF is considered a "mutual fund investment" for tax purposes. 

This is also how it works for US Reit ETF's. Buy a US Reit individually, you pay 30% withholding tax...buy a US Reit ETF, you pay 15% withholding tax.

( just more governement tax lunacy..both US and Canada)

Perhaps another poster can double check on this and post here.


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## Oliverlip (Jun 27, 2011)

The best usually in this case is to create a dedicated structure. Depending on the trading structure chosen it can allow to cancel or at least largely reduce the withholding tax paid.

Depending on the way the trading is done and the countries involved you usually can achieve a total overall net tax of 5% to 10% (income tax and withholding tax included).

The choice of using such structure in the end largely depends on its cost. Typically with a yearly profit of 200.000 USD it starts to be interesting. The set up cost is about 6000 USD and a yearly cost of about 7000 USD


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