If a U.S. person does business in Canada, there are many different tax implications that should be addressed to ensure proper compliance with Canadian reporting requirements enforced by the Canada Revenue Agency (CRA). Withholdings are generally required at source on any income earned by a non-resident in Canada. The CRA has its own prescribed withholding rates for the various types of income (wages, interest, dividends, etc), but there may be an opportunity to appeal to the tax treaty between the U.S. and Canada, and reduce the withholding rate on the non-resident’s Canadian source income. This could equal more money in the taxpayer’s pocket sooner rather than later.
In this post the experts at AG Tax will cover form NR301 “Declaration of Eligibility for Benefits under a Tax Treaty for a Non-Resident Taxpayer”. We advise that taxpayers consult with a qualified cross border tax accountant when filling out this form, as citing the wrong sections of the Treaty or requesting incorrect reduced withholding rates can create situations with the CRA that will take additional time and effort to resolve.
What is Form NR301?
Form NR301 is a declaration statement for non-resident taxpayers, resident of a country that Canada has a tax treaty with, to claim reduced tax rates or exemptions provided by the applicable tax treaty.
Who Should File form NR301?
Non-resident taxpayers of Canada, who are a resident in a country with which Canada has an existing tax treaty should consult a tax advisor on whether or not to file form NR301.
Why File Form NR301?
Form NR301 is not mandatory, and thus not liable to penalty. However, since a non-resident taxpayer may be able to claim reduced withholding tax rate through an existing income tax treaty between Canada and their country, whether or not to file this form should be discussed with a cross-border tax advisor. If the form is not filed, the full statutory rate will be applicable under the assumption that treaty benefits do not apply.
Where Does a Taxpayer Need to Send Form NR301?
Depending on the source of income, a taxpayer needs to send Form NR301 to one of the following three places:
• To the Canadian payer
• To the hybrid entity or partnership
• To the Canada Revenue Agency (CRA)
o Additional forms may be required to be sent to the CRA in the event they request the NR301
When Does a Taxpayer Need to File Form NR301?
There is no particular date by which Form NR301 needs to be filed, but to ensure that the Treaty-based tax rates are applicable, the completed NR301 should be sent to the respective organization (mentioned above) as required at the beginning of the new tax year.
When do the Benefits of Form NR301 Expire?
Once certified that the non-resident taxpayer is subject to treaty-based tax benefits, the individual/ corporation/trust can claim the benefits of the treaty for 3 years from the date it was signed, and/or until there are changes in the taxpayer’s eligibility for claiming the treaty benefits, such as: change in mailing address or any other information that was declared in the form.
However, the information/certification has to be kept for 6 years from the end of the last tax year to which it relates for audit purposes.
AG Tax LLP Can Help
If you have any tax-related queries, need assistance with tax planning or filing your tax returns please contact us. Our team comprises of highly experienced tax professionals with extensive knowledge of U.S. and Canadian tax laws as well as cross-border compliance.
Furthermore, as a full service accounting firm, AG Tax associates are dedicated to assist you with even your most complex tax needs.
We can assist with:
- Canadian Personal and corporate tax returns
- Cross Border Taxation and Business Planning
- U.S. Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- Estate Planning, Inheritance tax advice
To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:
- 416-238-5920 (Greater Toronto Area, ON)
- 604-538-8735 (Greater Vancouver Area, BC)
- 780-702-2732 (Greater Edmonton Area, AB)
Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.
