Q&A: Withholding tax

Question: Four months ago, I purchased 1000 shares of France Telecom on the New York Stock Exchange from within my RRSP. They paid a large dividend and 30% of that money was withheld. It is my understanding that the Canada/U.S. tax treaty is supposed to eliminate this withholding tax. To whom should I write to get the $300 back? Which establishment actually withholds the money and does the money go to the IRS? – Gord R.

Gordon Pape answers: Yes, the Canada-U.S. Tax Treaty exempts U.S.-source dividends paid to RRSPs and RRIFs from the 15% cross-border withholding tax that normally applies. That tax is collected by the government of the country where the corporation paying the dividend is domiciled.

However, France Telecom is not a U.S. company and the fact it trades on a U.S. exchange as an ADR does not change that. The Canada-U.S. Tax Treaty therefore does not apply. The withholding tax is determined by the country where the firm has its headquarters, in this case France.

Since the shares are in an RRSP, you can’t even claim a foreign tax credit for the amount paid. You may wish to consider selling them or swapping them out of the plan.

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