Investing

Thread for Foreign Withholding Tax Discussions

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  • Apr 7th, 2019 2:18 pm
[OP]
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Feb 1, 2012
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kasm wrote:
Feb 11th, 2019 9:42 am
Is this US Withholding tax similar to taxes that are taken off your paycheck in the sense that whether they are withheld at the beginning or paid at tax time, in the end it's a wash because you still end up paying the same amount?

In other words, whether they are withheld on the distribution or not, you still end up paying the same come tax time?
Sort of, but not exactly. And only sometimes. Albert Einstein is reported to have said "The hardest thing to understand is income tax". :rolleyes:

If you really want to understand this refer to the links at the top of this thread.

In a non-registered account you get a tax slip that lists FWT as Foreign Non-business Tax Paid. You can claim that as a non-refundable tax credit. With non-refundable credits you must have other tax payable against which to claim the credit. And I believe there is a limit on the % refunded so for countries that have a high FWT you would not get all of it credited.

In registered accounts you don't get a tax slip therefore any FWT deducted is non-recoverable.
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Newbie
Dec 22, 2018
11 posts
I am interesed in conv my CAD -> US using NG method since I need over 10,000 RRSP this year. Then I will buy US dominated ETF to avoid withhelding tax when ETFs pay out dividens as cash. Does it apply to EFTs pay out dividens as stocks?
I see now the cash divided is less than 2% in 2017.
Thanks for your input.
[OP]
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Reinvesting dividends does not affect withholding taxes. They are deducted when the dividends are paid. Reinvested dividends just takes the cash from dividends and buys more of the stock or ETF. Same as if you reinvested the dividends yourself, except you save the trading commission (if one applies at your broker).

Justin Bender at Canadian Portfolio Manager has some video tutorials on Norbit's Gambert. You did not say what broker you use so here is his video tutorial page:
https://www.canadianportfoliomanagerblo ... tutorials/
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Jan 21, 2017
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daverobev wrote:
Feb 11th, 2019 6:12 am
The info is on the T5 or T3; there is a box for foreign tax paid or something like that.

As others have mentioned - even if you are 100% US stock ETF in a TFSA, you are losing 15% of dividends, which is currently about 2%. So 0.3% loss.

The takehome is:

1. Buy your US stuff as US-domiciled ETFs in your RRSP

2. Buy ETFs that hold foreign stocks directly in the TFSA (ie, not a Canadian ETF that only owns a US ETF)

3. Don't worry about it *too* much - make a plan, follow your asset allocation *first*, worry about optimising what goes where *second*, and don't worry about FWT much at all.
true. while i've been paying 15% tax on dividend the last few years, it's better than not investing at all. lol.
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Jan 22, 2017
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AB
Deepwater wrote:
Feb 10th, 2019 10:15 pm
FWT apply in all of the funds you mentioned. You don't pay them directly. The fund pays them and the net distributions are issued to ETF holders.
Refer to this file: https://www.pwlcapital.com/wp-content/u ... linked.pdf

XUS is type B, a Canadian listed ETF that holds a US listed ETF of US stocks. In a TFSA, US withholding taxes apply and are not recoverable.
XEC is a type G, a Canadian listed ETF that holds a US listed ETF of emerging market stocks. In a TFSA, both US and foreign withholding taxes apply and are not recoverable.

XAW holds its US holdings in US listed ETFs of US stocks (type B). In a TFSA, US withholding taxes apply and are not recoverable.
XAW holds its global developed market stocks in a Canadian listed ETF that holds global developed market stocks directly (type E). In a TFSA, foreign withholding taxes apply and are not recoverable.
XAW holds its emerging market stocks in a US listed ETF of emerging market stocks (type G). In a TFSA, both US and foreign withholding taxes apply and are not recoverable.
So if I understand this correctly, say you have 500 shares of XAW in your TFSA and the dividend/share for Dec 2018 was $0.30064 per the iShares website.

As the FWT has already been deducted by the fund, then you should have received the full $150.32 (500 x 0.30064) in your account?
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LenG17 wrote:
Feb 12th, 2019 6:47 pm
So if I understand this correctly, say you have 500 shares of XAW in your TFSA and the dividend/share for Dec 2018 was $0.30064 per the iShares website.

As the FWT has already been deducted by the fund, then you should have received the full $150.32 (500 x 0.30064) in your account?
Correct.
[OP]
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LenG17 wrote:
Feb 12th, 2019 6:47 pm
So if I understand this correctly, say you have 500 shares of XAW in your TFSA and the dividend/share for Dec 2018 was $0.30064 per the iShares website.

As the FWT has already been deducted by the fund, then you should have received the full $150.32 (500 x 0.30064) in your account?
I cannot comment specifically on XAW since I do not own it. Every other ETF I have ever held has paid out the full amount of the declared distribution per share into my account.

Items like FWT and HST are not directly visible to the unit owners unless you look at the annual financial report for the fund. Even then they are listed as total amounts, not per unit.
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Jr. Member
Oct 26, 2006
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Kitchener
Anyone know how withholding tax is treated for Canadian companies that pay out is US$ inside a TFSA?

I'm thinking companies like HOT.UN and SRT.UN. As it stands, the dividend is converted by my broker into Canadian dollars when it arrives. But if I shift the stock to the US side of my TFSA account, will the broker be obliged to withhold 15% because the distribution is now denominated in US currency?

I've done a fairly thorough search on this, but haven't found a definitive answer. Sorry in advance if this has been dealt with elsewhere.
Member
Sep 26, 2007
484 posts
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Richmond Hill
I currently hold a small amount of US stocks from my previous employer where I was able to purchase company stocks at a reduced rate. (5% discount) It's been sitting there for over 15 years and the dividends are reinvested in the stock.
I've been planning to sell the stocks lately but not sure what's the tax implication.
I signed the WBN form which the brokerage company (Computer Shared Services) asked to renew every 2 or 3 yrs I believe.

My question is can I move my US stock into a TFSA account or should I pretty much sell the stocks and purchase new ones that's allowed under TFSA?

Thank you.
Member
Nov 16, 2013
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Mississauga
daverobev wrote:
Feb 11th, 2019 6:12 am

As others have mentioned - even if you are 100% US stock ETF in a TFSA, you are losing 15% of dividends, which is currently about 2%. So 0.3% loss.

The takehome is:

1. Buy your US stuff as US-domiciled ETFs in your RRSP

2. Buy ETFs that hold foreign stocks directly in the TFSA (ie, not a Canadian ETF that only owns a US ETF)
Thanks. This is crux of the matter.

Can you recommend few US ETFs?

Also the best way to convert CAD to US for such purchase?
Member
Mar 16, 2018
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Hamilton
vivmk20 wrote: Thanks. This is crux of the matter.

Can you recommend few US ETFs?

Also the best way to convert CAD to US for such purchase?
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compypaul wrote:
Feb 26th, 2019 12:50 pm
I'm thinking companies like HOT.UN and SRT.UN. As it stands, the dividend is converted by my broker into Canadian dollars when it arrives. But if I shift the stock to the US side of my TFSA account, will the broker be obliged to withhold 15% because the distribution is now denominated in US currency?
It has to do with how the dividends are categorized, not the currency they're paid in. For example, all dividends paid by Algonquin Power & Utilities are paid in USD while also being categorized as Canadian eligible dividends so no withholding. Taking one of your example, distributions paid by HOT.UN are not considered Canadian dividends so US withholding would apply unless held in a retirement account (RRSP, RRIF, LIF, LIRA, etc.).

So shift shares as much as you want, HOT.UN distributions held in a TFSA will be subject to US tax withholding.
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vivmk20 wrote:
Mar 19th, 2019 9:42 pm
Thanks. This is crux of the matter.

Can you recommend few US ETFs?

Also the best way to convert CAD to US for such purchase?
Norbert's Gambit if you are using one of the usual brokerages that charge a ridiculous markup on forex.

VTI is good.
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Deepwater wrote:
Feb 12th, 2019 8:55 pm
I cannot comment specifically on XAW since I do not own it. Every other ETF I have ever held has paid out the full amount of the declared distribution per share into my account.

Items like FWT and HST are not directly visible to the unit owners unless you look at the annual financial report for the fund. Even then they are listed as total amounts, not per unit.
What ETF can I buy that does not incur the 15% withhold tax?
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divx wrote:
Apr 1st, 2019 2:07 pm
What ETF can I buy that does not incur the 15% withhold tax?
1) In what account?
2) With what brokerage?

If you are with TD and have say 10K of XAW in RRSP - it'll cost you less than $40 in FWT a year, not worth the commissions to do the Norbert's Gambit to convert CAD to USD to buy USD ETFs. In TFSA, none for US and XEF for international (it holds stocks directly - and is a part of XAW). In non-reg, you can get FWT back from CAD-denominated ETFs. I know it's hard, but try reading the whitepaper listed in the first post - and do the math. It's 15% of tiny dividends, not the whole thing! Unless you have 100's of K's to invest, the FWT should be the least of your worries :)

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