Non-resident withholding tax on Canadian-source income
Tax on income from Canada of non-resident persons
Section 212 imposes a 25% withholding tax (reduced by tax treaty) on amounts paid by Canadian residents to non-residents — dividends, interest, rents, royalties, pensions, and management fees.
Plain-language explanation
Part XIII taxes income flowing from Canada to non-residents. When a Canadian payer sends certain types of income to a non-resident, the payer must withhold tax and remit it to CRA.
Base rate: 25% Without a tax treaty, the Part XIII rate is 25% on all covered payments.
Treaty reductions: Canada has tax treaties with over 90 countries. Common reduced rates: - US residents: 15% on dividends (5% if ≥10% corporate shareholder), 0% on interest (to arm's-length payees), 15% on royalties - UK residents: 15% on dividends, 10% on interest, 10% on royalties - German residents: 15% on dividends, 10% on interest, 10% on royalties
What is covered by Part XIII: - Dividends from Canadian corporations - Interest paid to non-arm's-length persons (arm's-length interest is exempt since 2008) - Rents and royalties - Pension payments (OAS, CPP, RPP payments to non-residents) - Management or administration fees - Film/TV royalties
Who is responsible: The Canadian payer must withhold the tax and remit by the 15th of the month following payment. Failure to withhold attracts the withholding agent's own penalties.
Example
A Canadian corporation pays a $10,000 dividend to a US shareholder. Under the Canada-US Tax Treaty, the rate is 15% (or 5% if the shareholder holds ≥10%). Withholding: $1,500 (15%). The corporation remits $1,500 to CRA and pays $8,500 to the US shareholder.
Amendment history
Significant changes to this provision. Older versions help you understand rules that applied in prior tax years.
Interest paid to arm's-length non-residents exempted from Part XIII withholding tax. Previously, all interest paid to non-residents (including arm's-length) was subject to 25% withholding (reduced by treaty). The exemption does not apply to non-arm's-length interest.
Before
All interest paid to non-residents subject to Part XIII withholding at 25% (treaty rates could reduce)
After
Interest paid to arm's-length non-residents exempt from Part XIII; non-arm's-length interest still subject to withholding
Part XIII withholding rate reduced for certain payments to non-arm's-length non-residents. Improved information exchange and automatic reporting under the Common Reporting Standard (CRS) began phasing in.
Before
Limited international exchange of financial account information
After
Canada committed to OECD CRS; automatic exchange of financial account data with 100+ countries
Common questions
What is the withholding tax rate on dividends paid to US shareholders? +
15% on most dividends (reduced from the 25% base by the Canada-US Tax Treaty). 5% if the US company holds at least 10% of the voting shares. The payer must apply for treaty rates proactively — the default is the 25% statutory rate.
Do non-residents pay tax on interest from Canadian bank accounts? +
Not since 2008. Interest paid to arm's-length non-residents is exempt from Part XIII tax under s.212(1)(b)(vii). Non-arm's-length interest (e.g., from a parent company to a subsidiary) remains subject to withholding, usually at treaty rates.
Who is responsible for remitting withholding tax? +
The Canadian payer (the corporation, bank, or individual paying the non-resident). The payer must withhold the tax from the payment and remit it to CRA by the 15th of the following month. The payer is liable for both the unwithheld tax and penalties if they fail to withhold.
Key terms
Related sections
Source: Income Tax Act, RSC 1985, c. 1 (5th Supp.), section 212. — Read the official text on Justice Canada
These summaries are for educational purposes only and do not constitute legal or tax advice. Speak with a CPA for advice on your specific situation.