Cra’s new forms — declaration of eligibility for benefits under a tax treaty for a non-resident taxpayer
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These forms may be used if you have paid or credited an amount such as a dividend or a royalty to a non-resident of Canada and have reduced the rate of withholding tax in accordance with the terms of a bilateral tax treaty |
Earlier this year, the Canada Revenue Agency (CRA) released final versions of three forms that are specifically designed to assist Canadian residents determine if it is appropriate to apply a reduced rate of withholding tax on payments made to non-residents. These forms may be used if you have paid or credited an amount such as a dividend or a royalty to a non-resident of Canada and have reduced the rate of withholding tax in accordance with the terms of a bilateral tax treaty. For example, you would use one of the forms if you have paid a royalty to a resident of the U.S. (which is generally subject to withholding tax of 25% under Canadian tax legislation) and reduced the withholding tax rate to 0% in accordance with the Canada-U.S. Income Tax Treaty.
The new forms, which are not mandatory, are essentially declarations that vary depending on the non-resident recipient of the payment. Form NR301 is to be completed by non-resident recipients who are individuals, corporations, trusts (and partnerships that are taxed as corporations on their world-wide income), Form NR302 is to be completed by non-resident recipients that are partnerships and Form NR303 is to be completed by non-resident recipients that are hybrid entities.
Although these forms should be completed by the non-resident recipient of the payment, it is your responsibility as the Canadian payer to review the information provided to ensure that there is adequate detail to support the reduced treaty rate. In cases where the CRA has determined that not enough tax was withheld from the payments, an assessment (which can include interest and penalties) may be issued to you as payer, the non-resident recipient or both of you. In such a case, it is possible to request relief from the interest and penalties. Although the mere completion of the forms will not relieve your liability for inadequate withholding, requesting that the non-resident recipient complete the forms can help to ensure that you have adequate information to determine the appropriate rate of withholding.
In general, these forms are valid until the earlier of three years from the end of the calendar year in which the form is completed and when there is a change in the non-resident recipient’s eligibility for the reduced treaty rate. Each form does provide an undertaking from the non-resident recipient that they will notify you, the Canadian payer, of any changes to the information provided on the form.
While the CRA focuses on the level of information that a Canadian payer is required to obtain in order to reduce the withholding tax rates on payments to non-residents, it is becoming more important to ensure that the appropriate treaty rate has been applied. This means that you should take time on a regular basis to review any payments made to non-residents and ensure that there is proper documentation to support a reduced withholding tax rate. In cases where the new forms are not used, you are required to obtain equivalent information to that requested on the forms.
If you have any questions about the new forms, contact your BDO advisor.
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