Money Does the 15% withholding tax on U.S. dividends apply to capital gains too?

23:51  19 may  2017
23:51  19 may  2017 Source:   moneysense.ca

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And who reports withholding taxes to the IRS—me, or the investment company?

Let’s take a look at foreign dividend withholding taxes as it applies to U . S . income While the U . S . government does tax dividends paid by American companies, it doesn’t impose tax withholdings . The U . S . tax treaty with the Swiss means that U . S . investors should only face a 15 % withholding rate.

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Q: In February MoneySense published an article that discusses taxation for dividend generated by U.S. stocks held by a Canadian resident. In that article states: “The treaty requires 15% tax withholding on dividends and 10% tax withholding on interest. So if you own a U.S. stock, as a Canadian resident, there will be 15% withholding tax on any dividends earned. If you own a U.S. bond, as a Canadian resident, there will be 10% withholding tax on any interest earned.”

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A withholding tax of 15 per cent is being applied to dividends payable on U . S . equities in my tax -free savings account. If you can't use the loss in 2010, the capital loss can be carried back up to three years or carried forward indefinitely to offset capital gains .

If you had too much or too little income tax withheld from your pay, the IRS provides a withholding calculator on its website. The regular in-come tax rates for individuals do not apply to a net capital gain . Tax on qualified dividends and capital gains . For 2014, your capital gain and divi - dends

In line with that, I have a few questions for you regarding holding U.S. stocks directly through a self-managed TFSA. Does the 15% withholding tax also apply to capital gains? That is, selling a U.S. stock at a higher price that what you paid for it initially? Secondly, for the withholding charges, is the investor the one reporting to the IRS or would that be done directly by the investment management company? And finally, when is the tax withheld: when the stock is sold or at the end of the fiscal year?

—Ezequiel

A: In regards to your first question Ezequiel, the 15% treaty rate only applies to dividends paid from U.S. corporations. Capital gains on the sale of investments other than real property are not taxed when the recipient is a non-resident, non-citizen of the U.S.—as long as that person has not been in the U.S. for 183 days or more during the tax year. Without a proper withholding document on file with the payer of the income, dividends and capital gains can be withheld at 30%. The fact that the dividend is paid inside of a tax-deferred account like a TFSA or RESP makes no difference to the 15% withholding on U.S. dividends.

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• Includes a net capital gain or qualified dividends , use Worksheet 2-4 to figure the tax to enter here. 15 Income tax withheld and estimated to be withheld during 2012 (including income tax withholding on The regular in-come tax rates for individuals do not apply to a net capital gain .

Chapter 1 Tax Withholding for 2015 Page 15 . Includes a net capital gain or qualified dividends , use Worksheet 2-7 to figure the tax to enter here. • The regular in-come tax rates for individuals do not apply to a net capital gain .

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Generally, your investment manager withholds the 15% tax. In turn you receive a credit on your Canadian tax return, since the dividend is also taxable on your T1 General. If the tax is not withheld prior to you receiving the dividend, you need to file a tax return with the IRS to report the income, claim the treaty rate at 15% and pay the tax owed.

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France also has high, progressive individual income taxes that apply to both dividend and capital gains income. The country’ s dividend withholding rate increased from 10 to 15 percent.

Description Reports capital gains , dividend distributions and federal income tax withheld during 2008 from nonduciary accounts in all funds. Q: How do I reclaim nonresident alien withholding ? A: You can le Form 1040-NR if too much non-residential alien tax was withheld .

The fact that the dividend is paid inside of a tax-deferred account like a TFSA or RESP makes no difference to the 15% withholding on U.S. dividends. Generally, your investment manager withholds the 15% tax and you would receive a credit on your Canadian tax return since the dividend is also taxable on your T1 General. If the tax is not withheld prior to you receiving the dividend, you need to file a tax return with the IRS to report the income, claim the treaty rate at 15% and pay the tax owed.

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Chapter 1 Tax Withholding for 2016 Page 15 . Includes a net capital gain or qualified dividends , use Worksheet 2-7 to figure the tax to enter here. • The regular in-come tax rates for individuals do not apply to a net capital gain .

However, the QSBS rules do not allow the taxpayer to take both the exclusion and also apply the maximum capital gains rates to the balance. – Withholding Obligations: If the Fund has FDAP, it is required to withhold U . S . tax from amounts allocable to the non- U . S .

In regards to your second question, generally, your investment manager withholds the 15% tax and you would receive a credit on your Canadian tax return since the dividend is also taxable on your T1 General. If the tax is not withheld prior to you receiving the dividend, you need to file a tax return with the IRS to report the income, and claim the treaty rate at 15% and pay the tax owed.

Cleo Hamel is a senior tax expert with American Expat Taxes in Calgary

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