How non-residents are taxed on dividends and other forms of income

How non-residents are taxed on dividends and other forms of income

Gregor is worried because his dividend paying mutual funds aren’t sending him tax slips

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Q. I have been retired and living in the Philippines since 2009. I file my taxes as a non-resident of Canada. I have an RRSP, a LIRA, as well as a non-registered account with a major Canadian bank. My world income is 100% from Canada consisting of CPP, systematic withdrawals from retirement savings, and OAS to follow when I reach 65 next year. When monies are withdrawn the bank retains a 25% holdback for taxes. When I file my non-resident taxes I get a partial refund as my withdrawals to date have been minimal hence my tax rate has been less than 25%.

My question has to do with taxes being withheld from dividends earned from both my registered and non-registered stocks. The bank also deducts a withholding tax from dividends as they are paid out. I do not receive an information slip for taxes withheld from dividends. These dividend-paying funds were purchased when living and working in Canada during my long career. They are primarily held in U.S. funds. Why am I being taxed on these dividends without receiving an information slip?

Thank you in advance, Gregor

A. Gregor, the non-resident rules are very complex and there are certain qualifications and exemptions depending on the type of income and the country of residence. Canada has tax treaties with several countries and the list and details can be found on the Department of Finance website: www.fin.gc.ca.

As a non- resident of Canada receiving Canadian source income you are required to pay Part XIII tax on certain types of income. The types of income that fall under Part XIII income include: dividends; rental and royalty payments; pension payments; OAS; CPP and QPP; withdrawals from RRSP and RRIF; and annuity payments. Canadian organizations that pay these amounts to you are required to withhold the Part XIII tax which is 25% unless there is a tax treaty between Canada and the country you live in–in your case the Philippines.

The Part XIII tax is considered to be your final obligation to pay tax in Canada unless you have Canadian Qualifying income in which case you can elect to file an income tax return under Section 217. Canadian Qualifying income includes: CPP and QPP; RRSP withdrawals; pension payments; and other types of retirement income. Before you elect to file a tax return consult your accountant to make sure that filing a tax return is worthwhile for you.

As I mentioned, Canadian payers are required to withhold the Part XIII tax and in the case of your dividends there is no option to elect to file a Canadian tax return and the amount withheld on your dividends is your final tax amount payable. The Canadian payer of your dividends is not required to provide you with a T slip—T5 or T3—but is required to provide you with an NR4 slip showing what has been withheld.

Theresa Morley, CAP, CA is a partner with Morley Chartered Accountants in Barrie, Ont. Read her blog.

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