Interest, Dividends, Royalties and other payments made to a Non-Resident Person

A non-resident person is subject to a 25 percent income tax imposed under Part XIII of the Income Tax Act on the gross amount of the following payments made by a Canadian resident and certain non-residents to a non-resident person:

  • interest paid to a related party,
  • dividends,
  • certain royalties for the use of property in Canada,
  • management fees,
  • pensions and annuities, and
  • distributions from Canadian trusts or estates.

A Canadian payor is obligated to withhold and remit to the Canadian tax authorities the 25 percent income tax on the gross amount of any payment stated above.

However, a non-resident recipient of passive income may be entitled to a reduced rate of Canadian income tax under a relevant Canadian income tax convention. For example, a dividend paid by a Canadian resident to a person resident in a State with which Canada has an income tax convention may be reduced to 5 percent (in case of a 10 percent shareholder) or 15 percent (in case of a portfolio investor).

Canadian income tax conventions should always be examined where a non-resident is subject to income tax imposed under Part XIII of the Income Tax Act.

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