US Stock Dividends and Canadian Taxes

Jean-François Im

I was about to file my taxes for 2010 when I noticed in my mailbox that I received form 1042-S (Foreign Person's U.S. Source Income Subject to Withholding) for some dividends paid by a US corporation. As I wasted a couple of hours trying to figure if I needed to file in the US or not, I figured I'd save some time for other people by writing about this.

WARNING! I am not a financial consultant and this should not be construed as advice. Don't blame me if the CRA or the IRS send you nasty letters and threaten to seize your house, car, dog, cat and wife. Do check all appropriate tax-related information for both the US and Canadian sides of the border.

Assuming you only have US stock dividends, the form 1042-S that you received should indicate 15.00 (15%) in box 5 (tax rate), assuming that you filed form W8-BEN with your stock broker prior to dividends being paid out. If you have no other US-related income than stock dividends and withholding has been claimed at 15% due to the treaty, you do not need to file US taxes as none of the conditions in the "Who Must File" section of the instructions for form 1040NR apply.

If your form 1042-S does not indicate 15% and the form only contains dividends, you need to file a US tax return by filing form 1040NR (not 1040NR-EZ) by following the instructions for form 1040NR. Of particular note is the section "Simplified Procedure for Claiming Certain Refunds."

Now, when filing your Canadian taxes, you will need to file form T2209 and indicate the amount of tax that was paid to the US government. If withholding was appropriately done, add the form 1042-S to your Canadian tax file, otherwise you will probably need to add a copy of your form 1040NR as well to indicate the amount of taxes that were paid to the US government as "Any amount of tax you paid to a foreign government in excess of the amount you had to pay according to a tax treaty is considered a voluntary contribution and does not qualify as foreign taxes paid." You will also need to report the dividends as income on line 121.

Of course, you should double check all of the above information with the appropriate sections of both the Canadian and US tax codes and I hope that this has been helpful.