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W-8BEN is a tax form, by the U.S. Internal Revenue Service (IRS), used to certify that one is not a resident of the United States for tax purposes. If you are a Canadian resident and hold US domiciled investments, you should make sure to fill-up a W-8BEN form with your brokerage/financial institution if you haven’t already done so, as this works to your advantage and this is rather a simple task.
Why should I fill-up this form?
If you hold US investments as a Canadian, you are taxed twice on any dividends or interests you earn from these investments: Once in the U.S. and again in Canada. Assuming you never filled-out a W-8BEN form, the US withholding tax is normally levied at 30% (in addition to Canadian withholding tax you are normally subject to).
But under the terms of the U.S.-Canada Income Tax Treaty, Canadians benefit from a reduced withholding tax rate on US income you may receive in your account, essentially by claiming it as Canadian income. This includes dividends from U.S. companies, interests from U.S. fixed-income investments, and other types of income.
However, to benefit from the treaty, one must claim the right to it. You can do so by completing the W-8BEN form to confirm to the IRS that you are not a U.S. resident and that you will report your income to the Canada Revenue Agency.
With an up-to-date W-8BEN in place, US withholding tax for dividends drops to 15%, instead of 30%. For interests, US withholding tax drop to 0%. The 15% reduced tax rate apply for non-registered accounts, Tax-Free Savings Accounts (TFSA) and Registered Education Savings Plans (RESPs).
One exception is for Registered Retirement Savings Plans (RRSPs), as RRSPs are exempt and US withholding tax drop to 0%, with or without the form. This also applies to RRIFs. For this reason, it is usually more beneficial to hold US investments in RRSPs.
If you have US domiciled holdings, your brokerage will normally request that you fill-out the W-8BEN form.
Example: Let’s say you own shares in Johnson & Johnson (JNJ) in a non-registered account, and you earn $5,000 USD annually in dividends, before taxes. Without a W-8BEN, $1,500 USD (i.e., 30%) would be withheld in US taxes before anything is paid to your account. With a current W-8BEN in place, on the other hand, only $750 USD (i.e., 15%) would be paid as foreign taxes to the IRS, allowing you to save the $750 USD each year.
What type of US investments involve filing-up the W-8BEN for?
Investments for which filing-up a W-8BEN is worthwhile include:
- US Bonds
- US domiciled Stocks, such as those listed on the NYSE or the NASDAQ
- US Exchange traded funds (ETFs)
- Rental properties
How to fill-out the W-8BEN form
Filling-up the W-8BEN form is a simple process, all you have to do is the following assuming you are a Canadian citizen residing in Canada:
Part 1:
- Lines 1-4: just fill-up your basic information
- Line 6a: simply fill out your Canadian SIN here
- Line 8: put your date of birth
Part 2:
- Line 9, put “Canada”.
- Line 10: If you never had a green card, leave it blank.
FAQs
Do I have to fill the form across multiple accounts?
No
For how long is the W-8BEN valid for?
W-8BEN has a 3-year duration. Some brokerages may require refilling the form every 3 years, while others may refresh it automatically.
Usually, the W-8BEN form remains valid until the last day of the third calendar year after you sign it. For example, if you submit the form on December 1, 2023, it will be effective until December 31, 2026.
What are the consequences of not filling-out the W-8BEN form?
Not mandatory, but Tax of 30% will be withheld.
Who is responsible to pay the actual taxes withheld on income from US investments?
The withholding agent is responsible for deducting and withholding this tax paying it to the Internal Revenue Service (IRS).
Is the W-8BEN form also applicable for corporations?
No, this form applies to individuals. The correct form for corporations is the W-8 BEN-E form.
Disclaimer:
The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting/tax professionals. Wealth Illustrated will not be held liable for any problems that arise from the usage of the information provided on this page.
