Withholding is best thought of as an estimate of tax. So, when you have income from some source, some amount is withheld ofr your future tax obligation. The amount withheld for tax, though, may not be the actual amount of tax that you are required to pay. For example, in the case of the withdrawal of Canadian RRSPs by a US resident, if you withdraw them in a lump sum, the tax treaty indicates that 25% of the amount withdrawn is to be withheld and remitted to the Canadian government by the custodian of the RRSP account. But, what if you withdrew only a small amount of the RRSPs, like $25,000? The tax rate on $25,000 if you lived in Canada would likely be less than the $7,500 that was withheld. In that case, you have the ability to file a tax return with Canada to assess the actual amount of tax that is payable based upon your total Canadian-sourced income. If the tax payable is less than the 25% that was withheld, then you could be entitled to a refund of the difference.
Similarly, if you are a Canadian resident who is selling your US vacation home, there is an amount of the sale proceeds that must be withheld by the purchaser of the home and remitted to the US government. Called the FIRPTA (Foreign Investment in Real Property Act) withholding, the default amount withheld from the sale proceeds is 15% of the gross sale price of the home. The problem is that when you sell an asset, like a second home, you are not required to pay tax on the sale price; rather, you pay tax on any gain that you have in the property, after your purchase price, cost of improvements, and costs of sale are factored in. You can choose to wait and file a non-resident tax return in the US in the year following the sale of the home, but that means that the difference between the tax payable on the gain and the default tax withheld is tied up until that return is assessed. Instead, before you sell the home, you can apply to the IRS to reduce the withholding to the estimated tax liability associated with the gain, as long as you do so in advance of the sale.
So, withholding is not always the same as the tax that is payable. Speak with your advisors whenever you have a transaction in a foreign country, just to be sure that you understand withholding and how it may relate to the tax that may ultimately be payable on that transaction in both countries.