Canada withholds 25% on dividends paid to non-residents by default, but the Canada-US tax treaty cuts the Canada dividend withholding tax for US investors to 15% for most individuals and 5% for US corporations that own at least 10% of the voting stock of the Canadian payer. The tax is deducted at the source and sent to the Canada Revenue Agency, so you don’t file a Canadian return to settle it. On the US side, you claim a foreign tax credit for the Canadian tax so the same income isn’t taxed twice.
The Rates That Actually Apply to You
Section 212 of Canada’s Income Tax Act sets the baseline 25% rate on dividends paid by a Canadian-resident corporation to any non-resident.1Justice Laws Canada. Income Tax Act RSC 1985 c 1 (5th Supp) – Section 212 That is the fallback rate when no treaty applies or when the payer lacks the information needed to apply a lower one.
Article X of the Canada-US Income Tax Convention brings the rate down for US residents who are the beneficial owner of the dividend.2Internal Revenue Service. United States – Canada Income Tax Convention There are two treaty rates:
- 15% for US individuals and for US corporations that don’t meet the ownership threshold below. This is the rate that applies to essentially every US retail investor holding shares in Canadian public companies through a brokerage account.
- 5% for a US corporation that owns at least 10% of the voting stock of the Canadian company paying the dividend. The Third Protocol signed in 1995 dropped this rate from the original 10% to 5%.2Internal Revenue Service. United States – Canada Income Tax Convention
“Beneficial owner” is the treaty’s way of preventing intermediaries from claiming the reduced rate on behalf of someone who isn’t actually entitled. If you own the shares directly or through a standard brokerage account in your own name, you’re the beneficial owner. It gets more complicated inside trusts, partnerships, and layered holding structures.
Getting the Treaty Rate Applied
The treaty rate is not automatic. The Canadian payer needs enough information to confirm that you’re a treaty-country resident, the beneficial owner, and eligible for treaty benefits. Without that, the payer is expected to withhold at 25%.3Canada Revenue Agency. Beneficial Ownership and Tax Treaty Benefits
The standard certification is a CRA form filed with the payer:4Canada Revenue Agency. More Information on Forms NR301, NR302, and NR303
- Form NR301 for individuals and corporations.
- Form NR302 for partnerships with non-resident partners.
- Form NR303 for hybrid entities.
There is a shortcut for US individuals. A Canadian payer can apply the 15% rate without a completed NR301 if it has a permanent US residential address on file (not a P.O. box or care-of address), has no reason to doubt the information, and has procedures in place to flag address changes.3Canada Revenue Agency. Beneficial Ownership and Tax Treaty Benefits Most US-based brokerages handle this in the background for US-resident clients, which is why many investors never see an NR301 at all.
Form NR301 expires three years after the end of the calendar year in which it was signed, or sooner if your circumstances change. If you move or your status changes, tell the payer and submit a new form. Let it lapse and the payer may revert to 25% until you file a fresh declaration.
After year-end, the Canadian payer issues you an NR4 slip showing the gross dividend and the tax withheld. Keep it. You’ll need it to substantiate the foreign tax credit on your US return.
Recovering Tax That Was Over-Withheld
If you were charged 25% when you should have been charged 15%, or if tax was otherwise over-withheld, you can apply for a refund directly from the CRA using Form NR7-R, Application for Refund of Part XIII Tax Withheld.5Canada Revenue Agency. Applying for a Refund of Tax Overpayments This shows up most often on the first dividend after opening a new account, when the treaty certification hasn’t been processed yet.
The deadline is hard: the CRA must receive Form NR7-R no later than two years from the end of the calendar year in which the tax was remitted.5Canada Revenue Agency. Applying for a Refund of Tax Overpayments Tax withheld on a dividend paid in 2026 has to be claimed by the end of 2028. To have the refund deposited into a Canadian bank account, attach Form NR304.
Claiming the Foreign Tax Credit on Your US Return
The US taxes its residents on worldwide income, so Canadian dividends go on your US return at their gross amount. The foreign tax credit then offsets your US tax by the Canadian tax already paid on that income, which is how the treaty avoids double taxation in practice.
You claim the credit on Form 1116. It’s capped: the credit can’t exceed the share of your US tax attributable to your foreign-source income, calculated as foreign-source taxable income divided by total taxable income, multiplied by your total US tax.6Internal Revenue Service. Foreign Tax Credit – How to Figure the Credit Unused credit carries back one year or forward up to ten.
Smaller investors get a simpler option. If your total creditable foreign taxes for the year are $300 or less ($600 if married filing jointly), all your foreign-source income is passive (dividends, interest, and the like), and it was reported on a qualified payee statement such as a 1099-DIV, you can take the credit directly on your return without filing Form 1116.7Internal Revenue Service. Instructions for Form 1116 You give up the carryback and carryforward in exchange for skipping the form.
Qualified Dividend Rates
Canadian dividends can be taxed at the qualified dividend rates (0%, 15%, or 20%) rather than as ordinary income. Canada appears on the IRS list of countries whose tax treaty meets the requirements for qualified foreign corporation status.8Internal Revenue Service. Notice 24-11 – United States Income Tax Treaties That Meet the Requirements of Section 1(h)(11)(C)(i)(II) You still have to meet the holding period: at least 61 days during the 121-day window starting 60 days before the ex-dividend date.
One exclusion to know about: if the Canadian issuer is a passive foreign investment company, its dividends don’t get qualified treatment regardless of the treaty. That mostly catches certain Canadian investment holding vehicles, not operating businesses.
Watch the Account You Hold Them In
The account matters as much as the rate. Canada doesn’t recognize US retirement accounts as tax-exempt. When a Canadian company pays a dividend on shares inside your IRA, Canada still takes its 15%. But because IRA income isn’t currently taxable to you in the US, there’s no US tax liability to credit the Canadian withholding against, so the 15% becomes a permanent drag on returns rather than a credit you recover.
Roth IRAs are worse in this respect. You’ll never owe US tax on qualified Roth distributions, so Canadian withholding on Canadian dividends held in a Roth is a pure cost with no recovery on either side. Many US investors deliberately hold Canadian dividend payers in taxable brokerage accounts for exactly this reason: only in a taxable account can the foreign tax credit do its job.
Canadian RRSPs held by former Canadian residents now living in the US are a separate topic with their own treaty election under Article XVIII, and distributions carry their own withholding rules.9Internal Revenue Service. Publication 597 – Information on the United States-Canada Income Tax Treaty If you have an RRSP, treat it as a distinct question from ordinary Canadian dividend withholding on a US brokerage account.