# US withholding on RRSP equities



## FreeTrader (Aug 16, 2010)

I'm relatively new to this forum. Please excuse me if this question has been submitted before.

In my self-directed RRSP I hold some US securities which pay dividends. I previously completed the US Form W8BEN, but find that there is tax withheld on the dividends paid. I can accept that tax will be withheld on non-registered accounts and my TFSA, but not RRSP.

In yesterday's Financial Post ( Sept. 1 2010), the _"Ask the Broker"_ section stated that there should not be withholding tax on specifically designated retirement accounts. Have others found this to be the case?

Thanks for any feedback.

Regards,
Dave


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## warp (Sep 4, 2010)

There definitly should NOT be any withholding taxes in an RRSP.

Talk to the institution where your rrsp account is and have it fixed immediately as you will never be able to recover this tax in the future.

Insist that they do what has to be done , and recover this tax.


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## Jungle (Feb 17, 2010)

Found this on taxtips.ca

There is no withholding tax deducted from dividends received on shares of U.S. corporations held in an RRSP, as per the Tax Treaty between Canada and the U.S., Article XXI paragraph 2(a). *Sometimes, withholding tax (at varying rates, depending on the country) is deducted from dividends paid by foreign non-U.S. corporations, even when they are in an RRSP. These withholding taxes paid by the RRSP are not recoverable.*

http://www.taxtips.ca/rrsp/investmentsinorout.htm

This is all new to me as well, maybe the more senior members can explain?


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## alphatrader2000 (Aug 18, 2010)

FreeTrader said:


> I'm relatively new to this forum. Please excuse me if this question has been submitted before.
> 
> In my self-directed RRSP I hold some US securities which pay dividends. I previously completed the US Form W8BEN, but find that there is tax withheld on the dividends paid. I can accept that tax will be withheld on non-registered accounts and my TFSA, but not RRSP.
> 
> ...


There is a treaty between Canada and US that in effect prevents withholding tax in RRSP.


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## kcowan (Jul 1, 2010)

Jungle said:


> ...This is all new to me as well, maybe the more senior members can explain?


If the US fund holds foreign stocks, there are withholdings on their dividends at source. These withholdings are not refunded to a Canadian RRSP.


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## Eclectic12 (Oct 20, 2010)

Jungle said:


> Found this on taxtips.ca
> 
> There is no withholding tax deducted from dividends received on shares of U.S. corporations held in an RRSP, as per the Tax Treaty between Canada and the U.S., Article XXI paragraph 2(a). *Sometimes, withholding tax (at varying rates, depending on the country) is deducted from dividends paid by foreign non-U.S. corporations, even when they are in an RRSP. These withholding taxes paid by the RRSP are not recoverable.*
> 
> ...


Okay ... bear with me as this is likely to be a lot of information for you.

For true US stocks like Microsoft (I'm drawing a blank for a better US dividend payer at the moment), there is a tax treaty between Canada and the US that says RRSPs are exempt, all others (ex. non-registered or TFSA) pay a withholding tax of 15% of dividends.

In a non-registered account, you can file for a foreign tax credit (FTC) that is supposed to refund the tax. The Dividend Tax Credit (DTC) that gives Canadian dividends a better tax treatment, is not available.

In a TFSA, neither FTC nor DTC is available.

Note that this is the "ideal" situation with all the proper paperwork and no mistakes. When I Google'd it, I've seen posts saying that in some situations, either the RRSP mistakenly has the 15% taken - which is lost forever. Or in the case of a non-registered account, 30% withholding tax was taken, the FTC was applied for to get the 15% back but the additional 15% was lost.

This is the "usual" situation.

Now, the posting you quoted is starting with the US dividends in an RRSP where no withholding tax scenario is happening.

The part about other countries is pointing out that some shares called American Depository Receipts (ADRs) trade on the US market are originally *not* US companies and are not part of the Canada - US treaty. They are intended to allow participation in the foreign company without cross-border and cross-currency transactions.

So when dividends come from the original non-US company are paid to the US company that is acting as the depository, the home country deducts it's non-resident withholding tax at whatever rate they use. The American depository then puts the full amount in the RRSP due to the Canada - US treaty but it is not the full amount paid in the originating country.

Link to ADR description: http://en.wikipedia.org/wiki/American_Depositary_Receipt

Sample ADR for a German Company through Citi, a US company:
https://www.citiadr.idmanagedsolutions.com/stocks/profile.idms?cusip=251566105

Link indicating that the German withholding tax is just over 26%:
http://www.daimler.com/dccom/0-5-721614-1-461804-1-0-0-721626-0-0-135-7164-0-0-0-0-0-0-0.html


BTW - I just noticed kcowan's post which is the much simpler example where a US fund hold say Swedish, German or whatever stocks as part of it's portfolio. Same idea, just a different investment vehicle.

Hopefully this helps.


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