The Canada-US Income Tax Convention provides for the withholding of a 15% or 25% income tax on dividends and interest on dividends payed on Canadian Securities to US residents. (This includes many of my favorite green income stocks.) Most people can qualify for the reduced rate by filling out the NR301 Canadian tax form. Others, such as charitable organizations and retirement accounts qualify for an exemption.
Many custodians don’t get this right, and recovering improperly withheld payments is considerable work, when it’s possible at all. Canada requires one form NR7-R form per security and per dividend payment, plus supporting documentation.
The long and the short of it is, if you’re going to invest in income producing Canadian securities through your IRA, it’s very important to pick the right custodian.
I plan to write a much more in-depth article on this next month, but since I only have direct experience with this at two custodians (E*Trade (NASD:ETFC) and Charles Schwab (NYSE:SCHW)), I’d like to get readers’ experiences with other custodians so I can give a comprehensive guide as to which custodians handle this most effectively.
If you own dividend paying Canadian stocks in a US retirement account, please take my survey, or leave a comment.
I don’t want to prejudice the survey by relating my experiences yet, but here are some stocks for which I know that some custodians withhold tax:
AQUNF, INGXF, MCQPF, NFYEF, NPIFF, PENGF, PFBOF, TRSWF, WFIFF
This article was first published on the author’s Forbes.com blog, Green Stocks on April 1st