Canada: Tax treatment of capital trust securities
We hereby inform customers that the Canadian Revenue has clarified that they consider capital trust securities as trust instruments and as such the income distributions from these instruments should be treated as trust income.
Impact on customers
The standard rate of withholding tax on dividend distributions from Canadian capital trust securities is 25% in Clearstream Banking1.
However, most capital trust 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 capital trust distributions will be processed as follows:
Distribution on payment date
The Canadian capital trust will be subject to 25% withholding tax on the full distribution payment in Clearstream Banking. A quick refund from withholding tax on the original payment distribution from Canadian capital trust securities 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) and for Swiss Intermediaries.
Important note: Relief at source is currently not available for Capital Trust securities, but only for Trust units. Documentation requirements
For a quick refund of withholding tax on income from Canadian capital trust, the documentation requirements are as follows:
- One-Time Certificate – Canadian Equities and Trust Instruments;
- Per-Payment Breakdown of Holdings (requesting the quick refund);
- CRA Form NR301 (if applicable)
Reclassified components
Capital trust 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 distribution cannot be adjusted via quick refund via Clearstream Banking but adjustments can be reclaimed by the beneficial owner via the standard refund procedure.
Further information
The Market Taxation Guide - Canada has been updated.
For further information, customers may contact the Clearstream Banking Tax Help Desk on:
| Luxembourg | Frankfurt | |
| Email: | tax@clearstream.com | tax@clearstream.com |
| Telephone: | +352-243-32835 | +49-(0) 69-2 11-1 3821 |
| Fax: | +352-243-632835 | +49-(0) 69-2 11-61 3821 |
or Clearstream Banking Customer Service or their Relationship Officer.
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1. Clearstream Banking refers collectively to Clearstream Banking AG, registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in the Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500 (CBF) and Clearstream Banking, société anonyme, registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Register of Commerce and Companies under number B-9248 (CBL).