Fact Check: New withholding tax could hit Canadians with up to 20% tax on dividends.

Fact Check: New withholding tax could hit Canadians with up to 20% tax on dividends

What We Know

The claim that "new withholding tax could hit Canadians with up to 20% tax on dividends" is rooted in recent discussions around changes in tax legislation affecting Canadian investors, particularly in relation to U.S. tax policies. Currently, Canada imposes a maximum withholding tax (WHT) rate of 25% on dividends paid to non-residents, including U.S. investors (source). However, under the Canada-U.S. tax treaty, this rate is often reduced to 15% for Canadian residents holding U.S. securities (source).

Recent proposals in the U.S. Congress, particularly Section 899 of a new tax bill, suggest that Canada could be classified as a country imposing "unfair" taxes. If this classification is enacted, Canadian investors could face increased withholding taxes on U.S.-source investment income, potentially raising the effective tax rate on dividends from 15% to as high as 35% over time, or even 50% if combined with existing treaty rates (source). This indicates a significant potential increase in the tax burden on Canadian investors.

Analysis

The evidence supporting the claim comes primarily from the proposed U.S. tax legislation, which has passed the House of Representatives but has not yet become law (source). The assertion that Canadians could face up to a 20% tax on dividends stems from the potential increase in withholding tax rates as outlined in Section 899. If enacted, this would mean that Canadian investors could see their withholding tax rates on U.S. dividends rise significantly, potentially reaching the 20% threshold mentioned in the claim.

However, it is important to note that the proposed legislation is still subject to change and has not been finalized. Additionally, the classification of Canada as a country imposing "unfair" taxes is a subjective determination that could be contested (source). The reliability of this source is moderate, as it discusses potential future implications based on legislative proposals rather than established law.

Moreover, the current maximum withholding tax rate of 25% on dividends remains in effect until any new treaties or tax laws are finalized (source). Thus, while the claim has a basis in potential future changes, it is contingent upon the passage of U.S. legislation and the interpretation of tax fairness.

Conclusion

Verdict: True
The claim that a new withholding tax could hit Canadians with up to 20% tax on dividends is true in the context of proposed changes to U.S. tax legislation that may affect Canadian investors. While the current maximum withholding tax is 25%, the potential for increased rates under the new U.S. tax proposals could indeed lead to effective tax rates on dividends reaching or exceeding 20%. However, this is contingent on the passage of the proposed legislation and its implementation.

Fact Check: New withholding tax could hit Canadians with up to 20% tax on dividends.