My_question_is: Applicable to both US and Canada
Subject: taxation of stock dividends
Date: Wednesday March 14, 2007
Time: 06:15 PM -0500
If a single person living in canada owns u.s. stock such as at&t should that person be better off receiving his dividends in the states. THis person resides in canada for more than 183 days a year which means she will be taxed as a canadian. I realise that under canadian taxation there is to be deducted from their percentage consideration of american taxes that are executed in that country (u.s.). There is also a factor of this person's lawyer trying to control her estate from canada. By putting her dividends in a american bank instead of a canadian is this a smart move in that he will not be able to get into her estate as easily. Her dividends are around $10,000 a month and she is taxed at 82% in canada. Is this right?
david ingram replies:
I assume that you are a US citizen living in Canada most of the time and that it is a Canadian lawyer you are talking about.
I cannot comment on the situation with your lawyer. However as a non-resident of the USA and a resident of Canada, it does not matter where you have dividends deposited. The dividends and all of your world income are subject to Canadian tax at the marginal tax rate for the province you are living in.
In BC for instance there are 6 marginal tax rates
up to $33,755, you pay 21.3%
from $33,755 to 36,378 you pay 24.509%
from $36,378 to 72,756 you pay 31.185%
from $72,756 to 77,511 you pay 37.7%
from $77,511to 94,121 you pay 39.73%
from $94,121 to 118,285 you pay 40.792%
over $118,285 you pay 43.7%
Please PAY ATTENTION
Going up a tax bracket, does NOT increase the tax you have already paid.
You only pay the higher tax bracket on the next $1.00, not the dollars below.
Every province will be different but:
There is NO SUCH THING as an 82% tax rate in Canada
And, if you had ordinary Canadian Dividends, the tax rate would be half of the amount I have quoted above. In fact, if all you had was $25,000 worth of dividends in Canada, there would be NO tax at all and if you received $100,000 worth of Canadian dividends, the grossed up amount would only have $15,526.07 of tax payable.
And if you had $100,000 of Eligible Canadian Dividends, the tax on $100,000 of eligible dividends in BC is only $9,197.36.
Now, if you are an American citizen living in Canada, the maximum tax you will pay to the US is 15% under articles X and XXIV(5)(c) of the US / Canada Tax Treaty.
It is very important to take advantage of this because Canada's CRA will only allow you a tax credit of 15% tax for dividends.
When the tax credit is claimed at the amounts you are suggesting, it is a dollar for dollar deduction from Canadian Tax.
If you are having a problem with your lawyer, you need to deal with and get advice from a lawyer in the province in which you are living. Make sure you find a specialist in the topic you are having a problem with. But, be careful. Advertising a service does NOT automatically mean that the person is really good at that particular topic. Check around for references.
A very good method is to ask the lawyer you are having your difference of opinion for the names of two or three others you could get a second opinion from.
Another method of finding a lawyer is to phone the law society where you live. However, I do not recommend this because (in my opinion) the Law Society personnel will NOT give a recommendation based upon the best but upon who is there.
Now, for the record I spent almost three hours answering this because it was about time I figured out the marginal tax rates for this year and I figured out my own rather than using someone else's .
CEN-TA Cross Border Services - Tax, Visas, Immigration