U.S. legislation related to IRS code 1446(f) requires brokerage firms to withhold and submit tax from gross sales proceeds and certain distributions of publicly traded Partnerships (PTP) starting January 1, 2023.
All clients, except “U.S. Persons”, who hold this type of product will see a withholding on the transaction amount realized on a sale, exchange or disposition of a PTP interest and on certain distributions. The amount of the withholding tax will be 10% on the full gross proceeds, under an IRS presumption rule, if no Qualified Notice (“QN”) is issued. Alternatively, no withholding will be applicable if the PTP issues a QN indicating that, had it sold all of its assets at their fair market value on the date of the QN, less than 10% of the gain would be effectively connected with a trade or business within the United States.
Individuals
- Distribution
- Withholding at 37% (already in effect)
- Sale, exchange or disposition (in effect as of January 1, 2023)
- Withholding at 10% on the full gross proceeds received. Withholding tax may also be applicable on certain distributions. This withholding tax will be in addition to any existing withholding tax applied to U.S. source income.
Corporations
- Distribution
- Withholding at 30% or 21% depending on whether an exemption notice has been issued (we currently withhold at a rate of 37%)
- Withholding at 30% or 21% depending on whether an exemption notice has been issued (we currently withhold at a rate of 37%)
- Sale or exchange (in effect as of January 1, 2023)
- Withholding at 10% on the full gross proceeds received. Withholding may also be applicable on certain distributions. This withholding tax will be in addition to any existing withholding tax applied to U.S. source income.
- Withholding at 10% on the full gross proceeds received. Withholding may also be applicable on certain distributions. This withholding tax will be in addition to any existing withholding tax applied to U.S. source income.
- The reduced rate normally granted under the Canada / United States convention likely does not apply to the portion of the ECI (Effectively Connected Income) distribution nor on the sale or transfer of the PTP.
- Withholdings apply to both regular and registered accounts.
- Schedule K-1 tax slips will be produced in 2024 for the 2023 tax year.
- All investors in a PTP are considered to be partners and have to file a U.S. tax return, even if they have not received a K‑1. However, to do this, they need to apply for a tax identification number (TIN) from the U.S. government. Clients of Qtrade Direct Investing will be exempt from withholding taxes on gross proceeds or distributions from a PTP in the following circumstances:
- Client is a U.S. Person and has provided a valid IRS Form W-9.
- Client is a non-U.S. Person and has provided a valid IRS Form W-8 with a valid treaty claim. The Form W-8 must also include the non-U.S. Persons U.S. TIN.
- PTP has issued a QN, on a timely basis, containing adequate certifications that the PTP is exempt from the 10% withholding tax.
If you have any questions, please contact your tax advisor.
For more information, please visit the IRS website: http://www.irs.gov/individuals/international-taxpayers/partnership-withholding