By Sharad Gondaliya, CPA
When your Canadian corporation pays a dividend to you, and you live outside Canada, the corporation must withhold tax before the money leaves. This is Part XIII tax. Getting it wrong makes the corporation liable for the tax it should have withheld, plus penalties and interest.
The basic rule
The standard rate is 25% of the gross dividend. A tax treaty between Canada and the shareholder’s country usually reduces it. The corporation withholds, remits the tax to CRA and reports it on an NR4 slip.
Treaty dividend rates for common countries
| Shareholder’s country | Company holding at least 10% of votes | Other shareholders, including individuals |
|---|---|---|
| United States | 5% | 15% |
| United Kingdom | 5% | 15% |
| Germany | 5% | 15% |
| United Arab Emirates | 5% | 15% |
| India | 15% | 25% |
| Bangladesh | 15% | 15% |
| No treaty | 25% | 25% |
Treaty conditions vary. Please confirm the exact article for your country before the first payment.
Two examples
| Payment | Shareholder | Rate | Tax withheld | Net paid |
|---|---|---|---|---|
| $100,000 dividend | US parent company owning 100% | 5% | $5,000 | $95,000 |
| $100,000 dividend | Individual resident in India | 25% | $25,000 | $75,000 |
How to claim the treaty rate
The corporation needs evidence that the shareholder qualifies. Individuals and corporations usually provide Form NR301, which declares residence and treaty eligibility. Keep it on file before you apply the reduced rate. If CRA later finds the shareholder did not qualify, the corporation owes the difference.
Deadlines
| Step | Deadline |
|---|---|
| Remit the withheld tax to CRA | 15th day of the month after the dividend is paid |
| File NR4 slips and NR4 Summary | March 31 of the following year |
| Give the NR4 slip to the shareholder | March 31 of the following year |
If the corporation fails to withhold, the penalty is generally 10% of the amount that should have been withheld, plus the tax itself and interest.
Payments that count as dividends without being called one
Part XIII also applies to amounts CRA treats as dividends:
- A loan from the corporation to a non-resident shareholder that is not repaid within one year after the corporation’s year-end.
- Interest denied under the thin capitalization rules, which is deemed a dividend.
- Personal expenses of the shareholder paid by the corporation.
Other payments that need withholding
Dividends are not the only payments covered. Interest to related lenders, management fees, royalties and rents paid to non-residents can also carry 25% withholding, often reduced by treaty. The same NR4 reporting applies.
A payment with no withholding
A return of paid-up capital, meaning the money originally invested for shares, can be paid back without Part XIII tax when done properly. This needs a corporate resolution and careful records.
Your home country
Canadian withholding is often creditable against tax in your home country. Rules differ by country. Please confirm the treatment with your home-country adviser.
How we help
We calculate the withholding, collect the NR301, remit the tax and file the NR4 slips for our clients. Directors are personally liable for unremitted withholding tax, so we treat these deadlines as fixed. Related reading: non-resident-owned corporations and T2 filing.
FAQs
Does the corporation withhold if the dividend is reinvested?
Yes. Withholding applies when the dividend is paid or credited, even if the money stays in Canada.
Is the NR4 needed if no tax was withheld?
Yes, in most cases. NR4 reporting covers amounts paid to non-residents, including those taxed at a treaty rate of 0% where one applies.
Can the corporation pay a salary to me instead?
Possibly, but salary has its own payroll and residency rules. Please speak with us before choosing between salary and dividends.
Speak with a CPA
Please book a free consultation at gondaliyacpa.ca/consultation. We are a 2026 Xero Awarded Firm with 1300+ five-star Google reviews, and we work on AFFORDABLE flat-fee annual packages.
Sharad Gondaliya is a CPA Canada & CPA USA with 15 Years+ experience of Accounting, Tax, Payroll of Corporate Small Businesses as Tax Accountant. He is a CPA Ontario member (61040184) and holds US CPA licences in Washington and Montana and is well known among corporate small businesses for tax planning, efficient tax solutions, and affordable CPA services. Sharad is the Principal (Director) of Gondaliya CPA – Affordable CPA Firm in Canada. Licenses: CPA Ontario: 61040184 | CPA USA (MT): PAC-CPAP-LIC-033176 | CPA USA (WA): 57629 | CPA Firm License: 61330051 View Full Author Bio