What happens when a non-resident owns shares in my Ontario corporation and receives dividends?

Dividends paid by a Canadian corporation to a non-resident shareholder are subject to Canadian withholding tax. This is a federal tax obligation. The standard withholding rate is 25% of the gross dividend, reduced to a lower rate — typically 15% or 10% — if the non-resident is resident in a country with which Canada has a tax treaty and qualifies for treaty benefits. The corporation must withhold the tax from the dividend payment and remit it to the CRA.

The non-resident files a non-resident tax return in Canada only in limited circumstances — withholding tax is generally a final tax on Canadian-source dividend income. However, the non-resident may need to report the income in their country of residence, and treaty provisions determine whether a credit is available there for Canadian withholding tax paid.

If a non-resident shareholder also receives salary from the corporation for services performed in Canada, different rules apply — employment income from Canadian sources is subject to regular Canadian income tax, and the non-resident must file a T1 return and pay tax on that income. The salary-dividend choice for a non-resident involves not just Canadian tax efficiency but also the tax rules of the shareholder's country of residence. An international tax specialist should be consulted for cross-border shareholders.