Canada: Reminder : New documentation requirements for relief at source

26.10.2012

Further to our previous Announcements1 concerning the new tax certification requirements of the Canadian Revenue Agency (CRA), and effective

1 January 2013

the new certification requirements for relief from withholding tax on Canadian securities will come into force.

We hereby provide further information about these requirements for the relief at source procedure via Clearstream Banking2.

Equities and trust units

Availability of relief at source

Relief at source is available to beneficial owners as follows:

  • For dividend income from Canadian equities:
    • Tax-exempt entities granted exempt status by the CRA; and
    • Residents of a Double Taxation Treaty (DTT) country who qualify as non-resident per CRA Form NR301.
  • For trust income from Canadian trust units:
    • Residents of a DTT country who qualify as non-resident per Form NR301.

Important note: Only beneficial owners that qualify as non-resident per Form NR301 will be eligible to claim DTT relief at source through Clearstream Banking. Partnerships (NR302) and Hybrid Entities (NR303) are not considered eligible and must apply for a refund via the standard refund procedure instead.

Documentation requirements

To obtain relief at source from withholding tax on dividend or trust income from Canadian securities for eligible beneficial owners through Clearstream Banking, documents must be submitted as follows:

  • For tax-exempt entities granted exempt status by the CRA:
    • One-Time Certificate for Canadian Equities and Trust Units (Own Assets, Clients Assets or Own and Clients Assets);
    • Certificate of Tax Exemption (including the “tax exempt registration number”); and
    • Per payment “Breakdown of Holdings” (when applicable).
  • For residents of a DTT country who qualify as non-resident as per Form NR301:
    • One-time certificate for Canadian Equities and Trust Units (Own Assets, Clients Assets or Own and Clients Assets);
    • Per payment Breakdown of Holdings (when applicable);
    • CRA Form NR301, as follows:
      • For customers holding proprietary assets:

        An original Form NR301, signed by the customer as final beneficial owner qualifying for DTT relief per Form NR301, must be submitted to Clearstream Banking directly.
      • For customers acting as intermediary:

        An original Form NR301, signed by the final beneficial owner qualifying for DTT relief (as per Form NR301), must be submitted to and retained by the customer, who must provide it promptly to Clearstream Banking upon request at any time.

        The customer must exercise due diligence with respect to the information provided on this form and must verify whether the information is sufficient to claim DTT relief on behalf of the final beneficial owner.

    Form NR301 is valid for three years from the end of the calendar year in which it is signed and dated by the final beneficial owner, unless there is a change in the taxpayer’s eligibility for treaty benefit, in which case a new form must be provided immediately.

    N.B.: Form NR301 must be dated before the first relevant dividend payment.

And, in addition, for pension plans that are exempt by virtue of a DTT:

  • For payments via Creation:
    • A letter from the pension plan declaring that it is operated exclusively to provide pension or retirement benefits and that qualifies for exemption on dividend income under the specified article of the relevant country treaty with Canada; and
    • A letter from the local tax authority confirming the tax status of the pension or retirement plan.
  • For payments via CASCADE:

    No exemption at source is available for Canadian income beneficially owned by pension plans. Such beneficial owner must apply for a refund directly with the CRA via CRA Form NR7R.

And, upon request, for all beneficial owners:

  • A List of Beneficial Owners;
  • A CRA Form NR301;
  • A Certificate of Residence; and
  • Any other tax documentation as required from time to time.

Deadlines (CET) for receipt of the required documentation by Clearstream Banking

DocumentFor payments via CreationFor payments via CASCADE
One-Time Certificate - Canadian Equities and Trust Units (Own Assets, Client Assets or Own and Client Assets)
Three business days before first dividend payment date by 10:00Eight business days before first dividend payment date by 10:00
Breakdown of HoldingsThree business days before dividend payment date by 10:00
Eight business days before dividend payment date by 10:00
CRA Form NR301Own assets:
Three business days before first dividend payment date by 10:00
Client assets:
Upon request
Own assets:
Eight business days before first dividend payment date by 10:00
Client assets:
Upon request
Certificate of Tax ExemptionThree business days before dividend payment date by 10:00
Eight business days before dividend payment date by 10:00
Letter from the pension planThree business days before dividend payment date by 10:00
N/A
Letter from the local tax authority confirming the tax status of the pension or retirement plan
Three business days before dividend payment date by 10:00N/A
Certificate of Residence
Upon requestUpon request
List of Beneficial Owners
Upon requestUpon request

Eligible beneficial owners for whom the customer does not provide the required documentation before the relevant Clearstream Banking deadline will not be able to obtain relief at source and will consequently be taxed at the maximum withholding tax rate (currently 25%).

Note: Versions of the Clearstream Banking forms are provided in the zip file attachment below. CRA Form NR301 is available from the CRA website at http://www.cra-arc.gc.ca/menu/AFAF_N-e.html.

Debt securities

Interest on most Canadian debt securities held in Clearstream Banking is not subject to withholding tax in Clearstream Banking and will systematically be paid gross with no action required from the customer or beneficial owner to obtain exemption.

However, 25% withholding tax may apply to the following:

  • A “Related” non-resident not dealing “at arm’s length” with the issuer for interest paid on the following types of bonds:
    • Corporate bonds; and
    • Government bonds issued before 15 April 1996.
  • “Participating interest” amounts from Canadian sources paid to a non-resident.

Important note: 25% withholding tax may be applied, upon request from the customer, if the underlying final beneficial owner is subject to the above taxation. It is the full responsibility of the customer to ensure that final beneficial owners are eligible for the tax rates applied for, including the Clearstream Banking default rate. Neither Clearstream Banking nor its local depository has any direct or indirect liability towards the Canadian authorities in this regard.

Holding restriction for Canadian resident beneficial owners

As of 1 January 2012, customers should refrain from holding securities on behalf of beneficial owners (including themselves, if applicable) who are resident for tax purposes in Canada, as defined by the relevant Canadian laws and regulations.

Note: The customer is solely responsible for putting in place all necessary arrangements with respect to the aforementioned holding restriction and the customer shall be liable to Clearstream Banking for any losses or damages arising out of or in connection with non-compliance therewith.

Impact on customers

As of 1 January 2013, the current Clearstream Banking certification “Request for Application of a Reduced Rate of Canadian Withholding Tax Payments” will no longer be valid.

In order to allow sufficient time to comply with the new requirements and regulations, we recommend that customers already start to prepare the above-mentioned NR301 certification for their beneficial owners and submit the required new certification to Clearstream Banking accordingly.

Also, as of 1 January 2013, dividend and trust income payments for which the new certification has not been provided, either to us directly or to the customer, as appropriate, will be taxed at the maximum withholding tax rate (currently 25%).

Further information

For further information, customers may contact the Clearstream Banking Tax Help Desk on:

LuxembourgFrankfurt
Email:tax@clearstream.comtax@clearstream.com
Telephone:+352-243-32835+49-(0) 69-2 11-1 3821
Fax:+352-243-632835+49-(0) 69-2 11-61 3821

or Clearstream Banking Customer Service or their Relationship Officer.

1. A11123, dated 8 September 2011, and A11204, dated 29 December 2011.
2. Clearstream Banking refers collectively to Clearstream Banking AG, registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in the Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500 (CBF) and Clearstream Banking, société anonyme, registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Register of Commerce and Companies under number B-9248 (CBL).

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