What is an IRS Form, W8BEN?

What is a W8BEN?

The W8BEN, or Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals) is a form which, when completed, is provided to the US income provider (Not the IRS!) in order to prevent 30% of your earnings being withheld and remitted to the IRS.

The W8BEN claims the treaty rate between Canada and the US which means you cannot be taxed by both countries on the same income, and by completing this form, you are certifying the following information to the IRS;

  • I am the individual that is the beneficial owner (or am authorized to sign for the individual that is the beneficial owner) of all the income to which this form relates or am using this form to document myself as an individual that is an owner or account holder of a foreign financial institution,
  • The person named on line 1 of this form is not a U.S. person
  • The income to which this form relates is:
    • (a) not effectively connected with the conduct of a trade or business in the United States,
    • (b) effectively connected but is not subject to tax under an applicable income tax treaty, or
    • (c) the partner’s share of a partnership’s effectively connected income,
  • The person named on line 1 of this form is a resident of the treaty country (in this case, Canada) listed on line 9 of the form (if any) within the meaning of the income tax treaty between the United States and that country, and
  • For broker transactions or barter exchanges, the beneficial owner is an exempt foreign person as defined in the instructions. Furthermore, I authorize this form to be provided to any withholding agent that has control, receipt, or custody of the income of which I am the beneficial owner or any withholding agent that can disburse or make payments of the income of which I am the beneficial owner.
  • I agree that I will submit a new form within 30 days if any certification made on this form becomes incorrect (changes).

In a nutshell, you’re telling the IRS, you are NOT a US person, that you do not work in the US and that you will report your income to the CRA.

Otherwise, they keep 30% of it.

 

New CRA Non-Resident Forms starting January 1st, 2012.

Well, look how time flies!

The new CRA Non-resident treaty-rate requirements take effect on January 1st, 2012.

Non-residents of Canada who are eligible for benefits under a tax treaty entered into between Canada and another country will now have to complete a declaration or provide equivalent information to avail themselves of any reduced rate of tax or exemption provided under the relevant tax treaty instead of relying on their domicile.

The Canada Revenue Agency (CRA) recently released three declaration forms to be used by non-residents of Canada for this purpose, namely;

Form NR301 – Declaration of eligibility for benefits under a tax treaty for a non-resident taxpayer.
http://www.cra-arc.gc.ca/E/pbg/tf/nr301/nr301-10e.pdf

Form NR302 – Declaration of eligibility for benefits under a tax treaty for a partnership with non-resident partners
http://www.cra-arc.gc.ca/E/pbg/tf/nr302/nr302-10e.pdf

Form NR303 – Declaration of eligibility for benefits under a tax treaty for a hybrid entity.
http://www.cra-arc.gc.ca/E/pbg/tf/nr303/nr303-10e.pdf

What information is the CRA now looking for?

Non-residents of Canada must disclose on these forms the following information:
(i) Legal name of non-resident
(ii) Mailing address of non-resident
(iii) Confirmation of type of non-resident (i.e., individual, corporation or trust)
(iv) Foreign and Canadian tax identification numbers if any
(v) Country of residence for treaty purposes
(vi) Type of income for which the non-resident is eligible for treaty benefits (e.g., interest, dividends, royalties, trust income, income from business carried on in Canada or gains from disposition of taxable Canadian property).

Where does the form go?

The non-resident must immediately notify the payer of any such income, or partnership or hybrid entity through which the income is derived, so they can be given the treaty rate.

Does this form expire?

Yes, These forms expire on the earlier of any change in the non-resident’s eligibility for treaty benefits or three years from the end of the calendar year in which this form is signed and dated.

What onus is now on the payor?

For its part, a Canadian resident payer is instructed NOT to apply a reduced Canadian withholding tax rate under Part XIII where:
(i) The non-resident has not provided the Form or equivalent information and such payer is not sure if the reduced rate applies,
(ii) The Form is not complete
(iii) A tax treaty is not in effect between Canada and the non-resident’s country of residence; or
(iv) Such payer has reason to believe that the information provided in the non-resident’s declaration is incorrect of misleading.

Who is liable?

If the non-resident does not complete the form and the treaty rate is given, the payor is held liable by the CRA for the difference between the treaty rate and the non-treaty rate, so usually 10%.

Big changes!

How are you preparing for them?