Comments on: Reader Question: How Does Investment Withholding Tax Work?

By: FrugalTrader

FrugalTrader — Thu, 14 Jan 2010 17:35:54 +0000

Sue, the TFSA is not exempt from withholding tax.

By: Sue

Sue — Thu, 14 Jan 2010 17:13:56 +0000

What if you buy US stocks with your Tax Free Savings Account? Do you still pay the withholding tax?

By: Joe

Joe — Thu, 15 Jan 2009 16:19:35 +0000

Brian,
From my experience, if you hold in a registered account, there is no 15% tax withheld.

For those of you who want to some exposure to US and global high divident stocks, there is a high dividend ETF from Claymore Investment–CYH , and they said
“By using the Forward Agreement, the income generated by the Global Yield Hog Index portfolio (generally foreign income) will be recharacterized and paid to Unitholders of the ETF primarily as distributions of return of capital and capital gains.”
So the tax on dividend and income would be dramatically lowered. If you marginal tax bracket is 40%, you have $1000 capital gain, you tax would be:
$1000/2*40%=$200, equivalent of 20% tax.
If buying high dividend US stocks directly , you have to pay 15% on the dividend, and on top of that the dividend after 15% tax will be treated as income.

By: Brian

Brian — Thu, 23 Oct 2008 17:50:50 +0000

Hi Frugal Trader,

If the investments are in a registered account. Does the US still withhold the 15%?

By: Buygood

Buygood — Mon, 08 Sep 2008 03:14:49 +0000

But I have no idea how much it withholds from dividend from ADR traded in US. US definitely does not tax on this kind of dividend. So I am worried about it too.

By: Buygood

Buygood — Mon, 08 Sep 2008 03:08:23 +0000

US withholds 15% tax on your dividend income and does not tax on your capital gain.

By: Tax Resource

Tax Resource — Mon, 25 Aug 2008 01:39:16 +0000

A few points on the article and comments.

You can claim a credit for foreign taxes withheld in non-registered accounts. The credit is the less of the tax actually withheld or 15% of the amount of the total amount received (before withholding).

ADR’s can be a challenge because the foreign jurisdiction withholds the tax and if the ADR is traded in the U.S. you may not get it back.

Anything foreign should be very closely scrutinized. Sometimes a portion of the tax withheld is gone forever and you need to account for than when investing.

By: Ryan

Ryan — Thu, 21 Aug 2008 15:45:58 +0000

Great article. I have often struggled with ‘where’ to put my investments. Before learning about withholding tax I placed by US holdings in my non-RRSP (SPY) and my other international holdings in my RRSP Account (EEM and XIN),

I decided to keep this set up because even XIN is paying such a high dividend rate compared to SPY. So even though I am losing out on the withholding tax my total tax bill is lower because the higher dividends from XIN are in my RRSP.

By: AverageCFA

AverageCFA — Thu, 21 Aug 2008 14:31:10 +0000

Withholding tax on dividends paid by ADR traded in US seems to depend on a treaty between Canada and the issuing country of the ADR, not USA. Did anyone come across a list of countries and withholding taxes a Canadian investor would pay on dividends received from non-US countries? For example, withholding tax on Nokia dividend is 28% even though NOK is traded on NYSE. How much will be withheld from a dividend paid by Abb Ltd (Swiss firm) or Barclays PLC (UK bank)?

Thank you

By: R I

R I — Thu, 21 Aug 2008 14:20:38 +0000

FYI,

Last september Canada and the US signed a new tax agreement that would eliminate withholding tax on interest. I think it has passed in Canada, but we are still waiting for US legislators to approve it. As of this moment, there is no withholding tax on interest paid in Canada to non-residents

By: Dividend Growth Investor

Dividend Growth Investor — Thu, 21 Aug 2008 14:13:07 +0000

That’s why its pays to hold most of your stocks, mutual funds and ETF’s in a tax deferred account..

By: Cannon_fodder

Cannon_fodder — Thu, 21 Aug 2008 13:32:09 +0000

FT,

and if you have the US dividend stocks in your RRSP combined with a DRIP, could a brokerage hit you twice with forex? Convert it to Canadian, then convert it back to US to buy whole shares?

By: FrugalTrader

FrugalTrader — Thu, 21 Aug 2008 12:13:28 +0000

Brian, the only caveat I can think of is that your dividend will be converted to Canadian dollars which means yet another forex hit from Canadian brokers. The only brokerage that I know of that allows USD to be held within an RRSP is Questrade.

By: Brian

Brian — Thu, 21 Aug 2008 12:10:39 +0000

Regarding the sidenote, what caveats are there to investing in US dividend generating stocks within an RRSP?

There are opportunities in the US markets to pick up great stocks, but I don’t want to be burdened with tax and regulatory penalties for shopping across the border.