Trust instruments - rates, eligibility, availability of relief etc. - Canada

08.02.2013

Withholding tax

Standard rate of withholding tax:25%Holding requirements / restrictions:Yes

The standard rate of withholding tax on dividends (cash and non-cash distributions) from Canadian trust instruments is 25% in Clearstream Banking.

However, most trust instrument distributions are subject to reclassification and, once the issuer has published a reclassification, beneficial owners may request tax corrections accordingly.

The actual tax to be withheld on trust instrument distributions may therefore be processed as follows:

Distribution on payment date:

The Canadian trust instrument will be subject to 25% withholding tax on the full distribution payment in Clearstream Banking.

Relief at source from withholding tax on the original payment distribution from Canadian trust instruments is available through Clearstream Banking for beneficial owners that are resident in a country that has a Double Taxation Treaty (DTT) with Canada and who qualify as non-resident according to Form NR301 (General).

Important note:

Relief is only available on trust unit distribution and not on distribution from capital trust securities.

Reclassified components:

Trust instrument distributions are subject to reclassification normally by the end of March. If the issuer publishes a reclassification, the final distribution to the beneficial owner may contain one or more of the following components:

  • Trust Income: subject to DTT (provided that the DTT has a clause that reduces the trust income);
  • Return of Capital: Taxed at either 15% or 0%, depending on whether the issue satisfies certain conditions;
  • Capital Gains: taxed at either 15% or 0%, depending on whether the issue satisfies certain conditions.

The reclassified components are not officially communicated to customers and it is up to the beneficial owner to monitor them via the Canadian Depository for Securities (CDS) and issuers’ websites.

Withholding taxes on the final reclassified trust instrument distribution cannot be adjusted via relief at source or quick refund via Clearstream Banking but adjustments can be reclaimed by the beneficial owner via the standard refund procedure.

Important note:

It is the full responsibility of the customer to ensure that final beneficial owners are eligible for the tax rates applied for, including the Clearstream Banking default rate. Neither Clearstream Banking nor its local depository has any direct or indirect liability towards the Canadian authorities in this regard.

Availability of relief

Click on the image for a larger view of the diagram showing the availability of relief at source and/or reclaim of withholding tax on income from Canadian trust instruments.

Eligible beneficial ownersRelief at SourceQuick RefundStandard Refund
Residents of a Double Taxation Treaty (DTT) country
(non-resident per Form NR301 (General))
YesaYesYes
Residents of a Double Taxation Treaty (DTT) country
(non-resident per Form NR302 (Partnerships))
NoNoYes
Residents of a Double Taxation Treaty (DTT) country
(non-resident per Form NR303 (Hybrid Entities)
NoNoYes
Tax-exempt entitiesNoNoYes

a. Relief is only available on trust unit distribution and not on distribution from capital trust securities.

Important note:
Customers acting as Swiss intermediary for final beneficial owners of Canadian trust instruments are required to submit a One-Time Certificate – Canadian Equities and Trust Instruments - Swiss Intermediary only.