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.
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11 responses so far ↓
1 Leslie S // Jan 8, 2008 at 9:10 am
I believe you’ll have to fill out the W8BEN if you move to TDW as well–any broker, in fact. All brokers I believe, are required to deduct & submit the withholding tax for dividends for US based securities held: confirm with your broker. Note this also applies to Canadian companies like Tim Horton’s that are registered in the US, and some mutual funds. Again, confirm with the broker–hopefully you’ll get someone who’s in the know at the call centre.
2 Canadian Capitalist // Jan 8, 2008 at 9:40 am
Leslie: I don’t recall filling out a W8BEN for TDW but they did require a copy of my driver’s license when opening an account. I vaguely remember E*Trade wanting a W8BEN form and sending constant reminders to send one.
A Questrade account specialist told me that a W8BEN is not necessary (but recommended) for classifying a client as a Canadian resident and a government-issued id would be enough. I guess its best to submit a W8BEN anyway.
3 Financial Jungle // Jan 8, 2008 at 1:40 pm
The big banks normally fill in the W8BEN on your behalf. This was what happened with Royal Bank ActionDirect when I signed up with them a few years back.
After reading this post, I immediately went to verify my Questrade statements, all US dividends were deducted by 15%. Even Vanguard European Pacific.
I don’t remember filing W8BEN for Questrade though.
4 Canadian Capitalist // Jan 8, 2008 at 2:13 pm
FJ: Good to know that you were correctly classified as a Canadian resident. I guess it’s just my run of bad luck with Questrade.
5 pessimist // Jan 9, 2008 at 9:41 am
I’m confused. If I, as a Canadian, buy shares through Questrade in a vanguard ETF say - do I have to file a tax return in the US?! Tell me this is not true. Thanks.
6 Canadian Capitalist // Jan 9, 2008 at 10:19 am
pessimist: No, you don’t have to file a tax return in the US. But if you hold say VTF in a taxable account, a withholding tax of 15% is charged. You get a credit for the withholding tax when filing a Canadian tax return.
7 pessimist // Jan 9, 2008 at 12:43 pm
Thanks a lot CC. That is reassuring.
8 Middle Class Millionaire // Jan 9, 2008 at 7:38 pm
CC,
I don’t think your experience at Questrade is unique. I’ve also had many bad experiences and have closed my account as a result. If you’re interested here were my reasons:
http://middleclassmillionaire.blogspot.com/2007/11/questrade-recently-closed-my-account.html
9 Canadian Capitalist // Jan 9, 2008 at 9:41 pm
MCM,
I did check out your post on Questrade (I’ve subscribed to your feed). Nothing gets resolved with them unless you have Emil on speed dial. I won’t be with them long - my transfer application is in the mail.
10 tax return // Jan 10, 2008 at 1:25 am
In the United States Tax Returns are filed with the Internal Revenue Services or with the state or local tax collection agency containing information used to calculate income tax or other taxes. Tax returns are generally prepared using forms prescribed by the IRS or other applicable taxing authority.
11 Tax Implications of Foreign Dividend Investing // May 13, 2008 at 7:15 am
[...] account, you will be subject to a 15% withholding tax on dividends (for Canadian residents; Check with your broker that you are correctly classified.). You will be paying your marginal tax rate on dividend income because it does not qualify for [...]
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