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.

For further information on this specific area of practice, please contact our specialized and dedicated tax lawyers:

TaxChambers LLP is collaborating with Andersen Global® in Canada.