The W-8 BEN Form: What Canadians Need to Know

What is a W-8 BEN?

The W-8 BEN is a tax form that Canadians can use to confirm that they’re not US taxpayers and may be eligible for reduced tax withholding on their US income. Its full name is Form W-8 BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals).

The form is issued by the Internal Revenue Service (IRS), the American counterpart of the Canada Revenue Agency (CRA).

The W-8 BEN is for individuals. It asks for basic information about you, including your name, address, country of citizenship, and date of birth.

Do not confuse it with Form W-8 BEN-E, which is for entities such as companies and organizations. Its full name is Form W-8 BEN-E, Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities).

What is withholding tax?

Withholding tax is tax withheld at the source of payment. If you have a salaried job, your employer automatically withholds part of your pay for income tax (and other deductions). The amount is calculated using information you provide on a TD1 form when you’re hired.

US withholding tax works in a similar way, with tax withheld by a bank, brokerage, tenant, or other payer, except that the rate is a flat 30%—unless your country of residence has a tax treaty with the US and you fill out a W-8 BEN form to reduce or eliminate withholding tax.

A tax treaty is an agreement between two countries to avoid double taxation on the same income and to prevent tax evasion. Tax treaties often reduce the amount of tax withheld when payment is issued.

Why do Canadians need a W-8 BEN?

Canadians use the W-8 BEN to:

• Prevent double taxation in Canada and the US
• Reduce or eliminate withholding tax on US income
• Certify beneficial ownership of that income

Non-US individuals are generally subject to a 30% withholding tax on certain US-sourced income, including investment, royalty, rental, and some freelance income. Because Canada has a tax treaty with the US, submitting a W-8 BEN form allows Canadians to claim reduced withholding tax rates.

For example, the withholding tax on most types of income is reduced from 30% to 15%, while certain interest earned from US savings accounts and fixed-income investments may be reduced to 0%. That doesn’t mean the income is tax free—you’ll pay the tax in Canada.

The W-8 BEN doesn’t apply to compensation earned as an employee or independent contractor for “personal services,” such as consulting, contract labour, or professional services (e.g., legal, medical, accounting) while you’re physically in the US. For that, you’ll need Form 8233.

A beneficial owner is the real and true owner of the income who will enjoy, use, or benefit from it, and is required to report it as gross income on their tax return.

What income is subject to US tax?

Canadians and other foreigners are subject to a 30% withholding tax rate on income from US sources, including:

• Interest (except if earned in certain registered accounts: RRSP, RRIF, LIRA)
• Dividends (except if earned in certain registered accounts: RRSP, RRIF, LIRA)
• Rents
• Royalties
• Premiums
• Annuities
• Compensation for, or in expectation of, services performed
• Substitute payments in a securities lending transaction
• Other fixed or determinable annual or periodical gains, profits, or income

Where can you get a W-8 BEN?

Your freelancing clients, bank, brokerage, or financial advisor might provide a form for you to sign and submit. You can also download the W-8 BEN and W-8 BEN-E forms from the IRS.

Where do you submit a W-8 BEN?

Once you’ve completed a W-8 BEN, you submit it to the withholding agent or payer—the person, corporation, investment brokerage, trust, association, or other entity issuing payments—not the IRS.

When does a W-8 BEN expire?

The W-8 BEN is valid for three calendar years, from the date you sign it until December 31 of the third succeeding calendar year. The W-8 BEN-E for entities is also valid for 3 calendar years after it’s signed.

Your bank, brokerage, or other payer may alert you that it’s time to renew your W-8 BEN, but it’s a good idea to check on this yourself.

Beware of W-8 BEN scams

You’re likely aware of CRA scams in Canada. Well, IRS scams are also plentiful, and some target US non-residents with fake W-8 BEN forms.

Why? Criminals are after your personal and financial information, which they can use to hack your accounts or steal your identity.

W-8 BEN forms should only be submitted to your withholding agent, such as a broker, client, or tenant. If you get a suspicious message, don’t reply, click links, or open attachments.

Other relevant tax forms and tax credits

These tax forms and tax credits may also apply to your situation.

Foreign tax credits in Canada

If you reported foreign income on your Canadian tax return and you paid taxes, such as withholding tax, on that income to another country, you can claim the federal foreign tax credit.

To qualify, you must have been a Canadian resident at any time in the year. To claim, fill out Form T2209, Federal Foreign Tax Credits.

You can also claim provincial or territorial foreign tax credits with Form T2036, Provincial or Territorial Foreign Tax Credit, except in Quebec, which uses the form TP-772-V, Foreign Tax Credit.

1042-S form

The 1042-S form is a slip issued by financial institutions to non-residents of the US for reporting certain kinds of US-sourced income, such as investment income.

The 1042-S shows what type of US income you received, how much you were paid, how much US tax was withheld, and whether a tax treaty rate was applied.

Canadian residents must report the 1042-S form as foreign income on their Canadian tax return and convert amounts to Canadian dollars.

Read more about the 1042-S.

Form T1135

Canadians who own “specified foreign property” as defined in the Income Tax Act with a total cost of more than CAD$100,000 at any time during the calendar year must file Form T1135, Foreign Income Verification Statement, with the CRA.

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