This article may not be the best explanation since you are an American and this is more from a Canadian perspective. The fact is there is plenty of information on this subject that would make ones head spin. I have been reading recently on "other boards" U.S. investors complaining about the 15% withholding tax and how the Canadian Government has a "hand in their pocket". As if we invented this tax scheme.
Our governments have a bilateral treaty, 15% tax on dividends from one anothers country. We pay the IRS & you pay the CRA (Canadian Revenue Agency). Since this tax isn't applicable in a Canadian RRSP, you may find a similar rule with an IRA account. Might be worth your considering a transfer of funds to an IRA or as much as possible. Shelter your taxable dividends where you can. Be thankful you are not a non-resident foreigner receiving dividends. They get goosed a whopping 30%.
The Mart dividend is going to be a rather generous one. Keep as much of it as you legally can. Seek advise from an accountant.
Oh for a simpler flat tax and unemployed accountants.
Check Your Withholding Tax
By Canadian Capitalist | Discount Brokers · InvestingOnline only, 7/01/08
Often, it doesn’t pay to procrastinate. I wrote about how I was in the process of moving our investment accounts out of Questrade and though I had filled out the transfer forms, I’ve been neglecting to mail the forms to TD Waterhouse. Sure enough, at the end of the year, some of my ETF holdings paid dividends and I find out yet another issue with Questrade.
If you hold a stock that trades in a US exchange in a taxable account and the stock pays you a dividend, a withholding tax is automatically charged to your account. Under a bilateral treaty, the withholding tax for Canadian residents is 15%. If you are not classified as a Canadian resident, the default withholding tax of 30% is charged. Fortunately, you can receive a credit for the 15% tax paid to the IRS when you file your taxes with the CRA but the 30% rate will result in some double taxation. Note that the withholding tax does not apply to RRSPs. You can find a detailed discussion on the withholding tax on Bylo’s website.
Though I had submitted a driver’s license along with my application and Questrade says that it’s policy is to classify clients as Canadian residents when a government-issued photo ID is supplied, our account “slipped through the net” and was set up as a non-resident account. As a result, when some of our ETF holdings made a distribution, 30% of the dividends were withheld. I contacted customer service and as is my usual experience, received little help beyond being told that it was my responsibility to submit a W8BEN form and since I didn’t, there was nothing they could do.
So, once again I contacted Emil Vojkollari, Chief Acquisitions Supervisor at Questrade to sort things out and as things stand now, I’ll be classified as a Canadian resident for future dividend payments and I’ll be issued a NR4, which I should file along with a NR7 to claim back the extra withholding tax. I could have avoided this headache if I had paid more attention to a dividend payment in September when a tax of $9.63 was withheld on a dividend payment of $32.10. I missed it because somehow we don’t tend to pay attention to small amounts.
If you have an account with Questrade and you hold US stocks in an investment account, you may want to check that 15% of dividend payments are being withheld. If not, contact Questrade and ensure that the correct withholding rate will be applied to future dividend payments. Check if a NR4 will be issued to you. As for me, I’ve finally had enough: my transfer papers are in the mail.