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RRSP exempt from US stock dividends withholding tax?

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  • May 24th, 2015 3:18 pm
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Deal Expert
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Apr 21, 2004
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RRSP exempt from US stock dividends withholding tax?

Just want to confirm this:

http://business.financialpost.com/perso ... u-s-stocks

Due to some tax treaties between Canada and the U.S., the IRS does NOT take this withholding tax from a registered account (RRSP, RRIF, LIRA, etc.), but DOES take the withholding tax from a TFSA. As an aside, U.S. dividends do have tax withheld in an RESP account.
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Sr. Member
May 22, 2004
695 posts
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Montreal
Correct, AFAIK, there is no US withholding tax on dividends in retirement accounts, but TFSA is not recognized as such. Don't know about RESP.
Deal Addict
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Oct 14, 2001
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GMA
orakle22 wrote: Correct, AFAIK, there is no US withholding tax on dividends in retirement accounts, but TFSA is not recognized as such. Don't know about RESP.
The only recognized exception is RRSP. Withholding will apply on all other account types.
Deal Addict
Oct 21, 2012
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Toronto
Also keep in mind only US$ securities are exempt. If you hold a Canadian fund with US securities, the fund will pay the tax.
Deal Addict
May 12, 2014
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Montreal
joey1234 wrote: Also keep in mind only US$ securities are exempt. If you hold a Canadian fund with US securities, the fund will pay the tax.
Excellent point. But it may be worth it to pay this dividend tax in order to avoid being subject to US estate taxes (yes, RRSPs can trigger US estate taxes, and even if no taxes are owed, it will cost money to properly file a US income tax return. This probably used to be ignored by many people, but with FATCA I think that lots of people will need to start taking this into account.)
Deal Addict
Jan 6, 2015
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Toronto, ON
Can someone explain what this "means" ? Say if I buy Apple stocks with my RRSP funds vs. TFSA funds, what happens with the dividends ?
Sr. Member
Aug 16, 2010
545 posts
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Thornhill
foodyforlife wrote: Can someone explain what this "means" ? Say if I buy Apple stocks with my RRSP funds vs. TFSA funds, what happens with the dividends ?
I'll add a 3rd scenario where you purchase AAPL stock in a non registered account.

1. RRSP - AAPL pays a dividend of $100; you receive the entire $100
2. TFSA - AAPL pays a dividend of $100; a withholding tax of 15% applied; you only receive $85
3. Unregistered - AAPL pays a dividend of $100; a withholding tax of 15% applied; you only receive $85 but you receive a foreign tax credit for the $15 paid
Member
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Apr 2, 2015
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Ottawa, ON
Above is accurate if you have filled in IRS forms and they are on record with your broker or financial institution. The W8 is actually part of the account application for some brokers so not a problem.

http://www.irs.gov/uac/Form-W-8BEN,-Cer ... ithholding

Unless protected by a tax treaty like we have with Canada-US for 15% the standard US foreign withholding can be as high as 30%. Fill the form and you're fine, and RRSP is protected from withholding as it is reciprocally recognized in the tax treaty as we would treat IRAs for Americans.

Also ask your institution about holding US listed ADRs (depositary receipts) of foreign corporations listed on American exchanges as withholding taxes can be different in some cases. I owned Total (Elftotalfina Oil now just TOT France) Repsol Spain and a few others way back had to file to get back some withheld divs.

Disappointing the treaty has not been updated to cover TFSA - we recognize their Roth IRA, and for some time too, which is the same trust structure and has a similar investment intent. As for RESP what a shame, if we threatened to disallow any disbursement to beneficiaries going to US colleges it would probably be in as well.

Can't blame the US for taking their cut, they're flat broke :P
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Jan 23, 2011
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Beware that most ADRs held in RRSPs will have withholding tax on dividends. Companies like Syngenta, Vale, Accenture, China Mobile etc... trade in the US but are foreign based so the US-Canada treaty does not apply. However, ADRs like Vodafone, British Telecom, GSK, HSBC, Smith Nephew etc... are UK companies and UK does not levy tax on dividends, so these can be held in any account with no withholding tax implications. The key is the treaty between Canada and the country the company is based in, and every country can have its quirks. For example, if you buy Sanofi, a French company, you pay a tax when you buy.
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Dec 7, 2011
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Whitehorse
stanimal wrote: I'll add a 3rd scenario where you purchase AAPL stock in a non registered account.

1. RRSP - AAPL pays a dividend of $100; you receive the entire $100
2. TFSA - AAPL pays a dividend of $100; a withholding tax of 15% applied; you only receive $85
3. Unregistered - AAPL pays a dividend of $100; a withholding tax of 15% applied; you only receive $85 but you receive a foreign tax credit for the $15 paid
You *may* receive a foreign tax credit. It is a complicated formula.

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