DIVIDENDS

RULES UNDER THE INCOME TAX ACT

Dividends paid by a corporation resident in Canada to a non-resident are generally subject to a 25% tax under Part XIII.

This can apply to "deemed dividends" as well as actual dividends, including deemed dividends arising in the following types of situations:

• Capitalization of surplus,
• Purchase for cancellation or redemption by a corporation of its shares to the extent that proceeds exceed the "paid-up capital" of those shares,
• Amounts received on wind-up or liquidation of corporation in excess of "paid-up capital",
• Loans to shareholders or related persons not repaid within one year from the end of the year in which loan made.

RULES UNDER CANADA'S TAX TREATIES

Jurisdiction To Tax

All of Canada's tax treaties allow Canada to tax non-residents on dividends paid by corporations resident in Canada.

Furthermore, those treaties generally provide, in effect, that all amounts treated as dividends for the purposes of the Income Tax Act are treated as dividends for that purpose.

Rates Of Tax

Virtually all of Canada's tax treaties provide for only a 15% rate of tax on dividends, rather than the statutory rate of 25% .

In addition, many of Canada's tax treaties provide for a "two-tier" rate structure under which there is a special (further) reduced rate of tax on "direct dividends" (i.e. dividends paid to other corporations where a minimum ownership requirement is met).

The application of these rules for a number of major countries is outlined below.