Beneficial ownership and tax treaty benefits

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Beneficial ownership
Residence and eligibility for treaty benefits
Amounts payable to a non-resident agent or nominee/financial intermediary

The payee's name and address may no longer be the only information needed to establish that treaty benefits apply.

To apply the correct rate of withholding, you should have enough recent information to prove that the payee:

• is the beneficial owner of the income
• is resident in a country with which Canada has a tax treaty
• is eligible for treaty benefits under the tax treaty on the income being paid

If you are not sure whether all three criteria are true, ask the payee to fill out and give you either the applicable form below or equivalent information:

• Form NR301, Declaration of eligibility for benefits (reduced tax) under a tax treaty for a non-resident person
• Form NR302, Declaration of eligibility for benefits (reduced tax) under a tax treaty for a partnership with non-resident partners
• Form NR303, Declaration of eligibility for benefits (reduced tax) under a tax treaty for a hybrid entity

Beneficial ownership

Generally, you can accept that the payee is the beneficial owner of the income, unless there is reasonable cause to suspect that the payee is not the beneficial owner.

Although this list does not cover all possibilities, it is reasonable to question whether the payee is the beneficial owner in the following situations:

• the payee is known to act, even occasionally, as an agent or nominee (other than as an agent or nominee residing in Switzerland)
• the payee is reported to be "in care of" another person, or "in trust"
• the mailing address for paying the income is different from the owner's registered address
• the payee is a partnership, a US Limited Liability Corporation, any other flow-through entity, or a co-ownership arrangement

If the payee is an insurance corporation or pension trust, the CRA will accept that the payee is the beneficial owner of amounts paid to a non-resident. However, that corporation or trust has to invest only for itself and include the amounts when it calculates its revenue.

Residence and eligibility for treaty benefits

The payee, partnerships or other flow-through entities with non-resident partners or members can give you one of the forms NR301, NR302, or NR303, or the information requested in these forms to certify that they are:

• the beneficial owner of the income
• resident in a specific tax treaty country
• eligible for tax treaty benefits on the income they receive

Even if you do not get Form NR301 or the information requested in the form to support the beneficial owner's country of residence and eligibility for tax treaty benefits, you may apply a tax treaty rate if all of the following are true:

• You obtain complete addresses of residence (permanent addresses) that are not post office boxes or care-of addresses
• You know that
  • the payee is an individual
  • the payee is an estate of a United States resident and the executor manages and controls the estate from the United States
• You have no reason to suspect the information is inaccurate, misleading, or that the payee is not entitled to the tax treaty benefit
• You have procedures in place so that changes in the payee's information, (such as change of address or contact information that includes a change in country, or returned mail) will result in a review of the withholding tax rate

In addition, do not request Forms NR301, NR302, or NR303 from the beneficial owner in the following circumstances:

• You will withhold the tax at the rate specified in Part XIII or Part XIII.2 of the Income Tax act
• You make a payment to an agent or nominee residing in Switzerland. You can withhold tax at the rate given in the Canada - Switzerland tax treaty on all amounts that you pay or credit that are taxable under Part XIII tax
• The Income Tax Act gives a reduction or exemption (except where the CRA requests written authorization)
• The CRA issues a letter of exemption or written authorization. You can reduce the withholding tax only after you receive the letter or authorization from the CRA
• You pay dividends to certain organizations of the United Kingdom: As long as certain conditions are met, dividends beneficially owned by an organization that was constituted and is operated in the United Kingdom only to administer or provide benefits under one or more recognized pension plans are exempt from withholding tax under Article 10 (Dividends) of the Canada-United Kingdom tax treaty. The treaty was amended by a protocol that came into effect for withholding tax for calendar years starting on or after January 1, 2015. Withholding agents should get a letter from the United Kingdom tax administration confirming that the recipient meets the criteria in Article 10
  The letter should be valid for the year in question and for no more than 3 years in total and:
  • in the case of pension plans arranged through an insurance company, confirm that the insurance company administers or manages pension schemes registered under Part 4 of the Finance Act 2004 (United Kingdom) including the schemes listed by the insurance company to which the arrangement applies
  • in all other cases, affirm that the pension plan is registered under Part 4 of the  Finance Act 2004 (United Kingdom), including pension funds or pension schemes arranged through insurance companies and unit trusts where the unit holders are only pension schemes
  The organization must attest that it is generally exempt from tax in the United Kingdom and does not directly or indirectly own more than 10% of the capital or more than 10% of the voting power of the company paying the dividends. In addition, the dividends received must only be for the benefits of recognized pension plans and the recognized pension plans must provide benefits to individuals, of which at least 90% must be residents of the United Kingdom.
• You pay dividends to certain organizations of Switzerland: As long as certain conditions are met, dividends beneficially owned by an organization that was constituted and is operated in Switzerland only to administer or provide benefits under one or more recognized pension plans are exempt from withholding tax under Article 10 (Dividends) of the Canada–Switzerland tax treaty. The treaty was amended by a protocol that came into effect for withholding tax for calendar years starting on or after January 1, 2012. Withholding agents should get a letter from the Switzerland tax administration confirming that the recipient meets the criteria in Article 10. The letter should say that the pension plan or plans match a pension or retirement plan in Switzerland that Canada recognizes for tax purposes and that is listed in the Memorandum of Understanding between the Competent Authorities of Canada and Switzerland
  The dividends cannot come from carrying on a trade or a business or from a related person.

The CRA issues a letter of exemption or written authorization to a non-resident when:

• Certain amounts paid to the government of another country that is exempt from Part XIII tax either due to a provision in a tax treaty or according to the Doctrine of Sovereign Immunity
• Certain pensions and similar payments received from Canada if the total amount received from all payers is less than a certain threshold amount
• Amounts received from organizations or plans exempt from tax under Article XXI of the Canada - United States tax treaty. If the non-resident only gives you an exemption number you must verify the expiry date by checking Guide T4016, Exempt U.S. Organizations - Under Article XXI of the Canada - United States Tax Convention

Amounts payable to a non-resident agent or nominee/financial intermediary

Non-resident agents or nominees who are holding securities on behalf of other non-residents must fill out and send an agent or nominee certificate, as described in Information Circular IC76-12R8, Applicable rate of Part XIII tax on amounts paid or credited to persons in countries with which Canada has a tax convention to the payer or another upstream agent or nominee, when applicable.

It is understood that only the entity that directly pays the beneficial owner will have the address and identification information of the beneficial owner. The CRA expects that entity to maintain this information and not pass it up to a chain of intermediaries. The payer will only receive pooled information in the form of an agent or nominee certificate as described in IC76-12R8.

Forms and publications

• Guide T4016, Exempt U.S. Organizations - Under Article XXI of the Canada - United States Tax Convention
• Form NR301, Declaration of eligibility for benefits (reduced tax) under a tax treaty for a non-resident person
• Form NR302, Declaration of eligibility for benefits (reduced tax) under a tax treaty for a partnership with non-resident partners
• Form NR303, Declaration of eligibility for benefits (reduced tax) under a tax treaty for a hybrid entity
• Information Circular IC76-12R8, Applicable rate of Part XIII tax on amounts paid or credited to persons in countries with which Canada has a tax convention

Related topics

• More information on forms NR301, NR302, and NR303
• Tax treaties