Plain meaning
A lower withholding-tax rate available under an applicable tax treaty for certain payments to non-residents.
Also called
reduced withholding rate
treaty withholding rate
Key points
- Canada's domestic Part XIII withholding rate can be reduced by an applicable tax treaty.
- The rate depends on the income type, recipient residence, beneficial ownership, and treaty wording.
- Payers may need documentation to support the reduced rate.
- Anti-abuse rules such as the principal purpose test or limitation-on-benefits clauses can deny treaty benefits.
Why it comes up
Treaty-reduced rates affect dividends, interest, royalties, pensions, service payments, compliance forms, and cross-border cash flow.