Comments on: Tax Optimizing the Couch Potato Portfolio

By: FrugalTrader

FrugalTrader — Sat, 11 Sep 2010 10:38:55 +0000

Paul, this article may answer your question: Income Trust Distributions and Taxation

By: Paul

Paul — Sat, 11 Sep 2010 02:08:35 +0000

I just found this post, and have a simple question.

How are REITs taxed ? Is it the same as interest ? (ie, no capital gains or dividend breaks…).

I want to add a REIT or two to my portfolio, and want to optimize my after-tax revenue (especially since I’m just going for some plain indexing and a few dividend stocks)

PS: Love your blog, very interesting read !

By: Financial Cents

Financial Cents — Sun, 04 Jul 2010 23:03:14 +0000

Thanks for the reply Frugal, I will let you know what I find out!

By: FrugalTrader

FrugalTrader — Sun, 04 Jul 2010 19:50:46 +0000

@Financial Cents, to my knowledge, RRSP’s are exempt from withholding taxes (US stocks), I would assume that the same rules apply to LIRA’s as well. Might want to double check with a tax pro.

By: Financial Cents

Financial Cents — Sun, 04 Jul 2010 13:23:10 +0000

Hey Frugal,

Good post! (Sorry, I’m late to the commenting party.)

Question to you and your faithful followers:

Do you know if RSP LIRAs (Locked-In Retirement Accounts) also have withholding taxes applied to them?

I can’t find much “out there” on the net about this…

I would like to hold U.S. dividend-paying stocks in my LIRA (like Johnson & Johnson), but I do not want to be penalized for this by paying any withholding tax.

I have my RSP LIRA since I had a pension with my former employer.

Cheers!

By: Simon

Simon — Thu, 11 Feb 2010 03:19:41 +0000

This was my email! Thanks a bundle for writing an article about it.

By: anon_reader

anon_reader — Fri, 05 Feb 2010 18:58:16 +0000

Hopefully the admin won’t mind me linking to another financial blog. No disrespect to anyone.

http://www.canadiancapitalist.com/how-withholding-taxes-affect-the-choice-of-international-investments/

By: Jug

Jug — Thu, 04 Feb 2010 23:47:51 +0000

So I followed the original Money Sense global couch potato, and put a 40/20/20/20 spit into XBB/XIC/XIN/XSP and its all in my TFSA. Will I be subject to any withholding tax, or not because my XSP and XIN are hedged to Canadian dollars?

By: Rick

Rick — Thu, 04 Feb 2010 03:24:31 +0000

This is the global couch potato actually. The original Moneysense couch contains only 3 funds.

By: financial adviser

financial adviser — Thu, 04 Feb 2010 02:48:57 +0000

And use this as a time to check for any new tax changes for the current year that could affect any other part of your financial plan.

By: finance

finance — Wed, 03 Feb 2010 09:03:50 +0000

Great post there. Like any other it would sometime depends on the agreement between countries. Informative one.

By: anon_reader

anon_reader — Tue, 02 Feb 2010 22:26:41 +0000

JC,
The dividends you receive won’t be taxed by the CRA in either account as they are held in tax free/registered accounts. TD already paid the withholding taxes to the IRS on all distributions from the US. Once you have enough money saved up in the TD-e US index, you can buy a US listed ETF as they have a much lower MER. Keep this US listing in the RRSP and not pay any withholding taxes, or keep it in the TFSA and pay the 30% withholding taxes. Fill out the W-8BEN form and have this reduced to 15%. All these reductions in taxes are due to tax treaties between the US and Can.

Disclaimer: I’m not a financial adviser, just another reader of this and other blogs.

Good luck.

By: JC NewGrad

JC NewGrad — Tue, 02 Feb 2010 16:01:08 +0000

Thanks Commander T.

So, if I understand corrrectly, until I have sufficient funds to justify the transaction costs associated with purchasing ETFs (rather than e-series funds), it won’t matter if my TD-e US index units are in my TFSA or RRSP — as the dividends will still be taxed (?)

By: andrewbpaterson

andrewbpaterson — Tue, 02 Feb 2010 12:08:45 +0000

Great post, FT!
I feel like there haven’t been as many “meat and potatoes” posts on MDJ, where you get into lower-level details about how to make something work, as opposed to merely presenting an idea or concept.

I’ve favourited this post, and will come back to it once I get the finances in order, and create some investing cashflow.

By: Commander T

Commander T — Tue, 02 Feb 2010 02:51:23 +0000

JC Newgrad,

The problem is that the US government does not look through the Mutual fund to the ultimate unitholder when determining who needs to withhold. Therefore US companies must withhold when paying dividends to a Canadian Mutual Fund.

RRSP’s are only exempt from US withholding taxes when they hold the US investment directly. Therefore the way to set up the couch potato portfolio tax effectively would be to purchase a US ETF in your RRSP. That way the US companies will not have to withhold when paying dividends to the ETF and the ETF will not have to withhold when paying dividends to your RRSP.

By: Financial Cents

Financial Cents — Tue, 02 Feb 2010 02:11:04 +0000

Good reminders Frugal!

By: Simon

Simon — Mon, 01 Feb 2010 22:04:32 +0000

I will point out, if you don’t have the money to fill the contribution room of the TFSA, then you are better off putting Canadian equities into the TFSA, rather than in a taxable investment account.

After all, even though they may have favourable tax treatment for Canadians, paying no taxes is even better.

For example, for myself, I’ve only been investing for a couple of years. So I dumped all my Canadian equities into my TFSA from my investment account. I have all my US and international equities in my RRSP.

I am putting about 50/50 mix each year into US and international equities / Canadian equities.

I’d put more into the TFSA, but I can’t find as many Canadian companies I like as much as US and international companies.

By: RetirementInvestingToday

RetirementInvestingToday — Mon, 01 Feb 2010 20:17:14 +0000

Here in the UK I use 3 tax optimising methods.

Firstly, a portion goes into a Pension which is a tax deferral scheme where I planning to go from 40% tax rate today to 20% at the time I withdraw.

Secondly, I max out my Individual Savings Account (ISA) which is a tax wrapper where growth and dividends can compound tax free. At retirement these funds can also be withdrawn tax free.

Thirdly, I buy Index Linked savings Certificates which keep pace with inflation and pay ‘interest’ tax free.

By: FrugalTrader

FrugalTrader — Mon, 01 Feb 2010 19:30:44 +0000

Hi JC, the withholding tax depends on the treaty Canada has with that other country. I know that US dividends will not face a withholding tax within an RRSP, but they will in a TFSA. As for the international td fund, I would need to dig a bit further.

By: JC NewGrad

JC NewGrad — Mon, 01 Feb 2010 16:34:41 +0000

Hmm.

I’m a bit confused about the e-series funds.

I asked a question a while back on CMF regarding withholding taxes on e-series funds within my TFSA and received this answer:

“The TD efunds are Canadian-domiciled funds, so there are no withholdings on their distributions to Cdn residents, regardless of where you hold the units … regarding the amounts withheld from the fund by its US-domiciled holdings , you’ll be out of luck … you can’t avoid those withholdings in an RRSP … those amounts are lost to you forever in both TFSA and RRSP.”

Is this info wrong and should I hold my US/Intl e-series funds in my RRSP only?