Investing

What to hold in RRSP, TFSA, and taxable trading accounts?

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  • Dec 12th, 2016 7:39 pm
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What to hold in RRSP, TFSA, and taxable trading accounts?

From what I've read in these forums, does it sound right to hold the following in these types of accounts:

RRSP - hold U.S. equities (U.S. dividends).
- holding U.S. or international ETFs such as VOO, VTI. Does holding U.S. and international ETFs such as VFV, VXC from Canadian based companies go into the RRSP basket also?

TFSA - hold interest producing things like GICs.

Unregistered account - hold Canadian equities (Canadian dividends) for the dividend tax credit and capital gains.

Is it advisable to hold Canadian equities in an RRSP or TFSA? How about GICs in an RRSP?
With the high U.S. $, is it better to hold off buying U.S. $ priced equities and ETFs to avoid paying the high currency conversion and just stick to the Canadian company U.S. ETFs like VFV?

Thanks in advance for your input. It's a bit confusing trying to decide what to put where.
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Honest truth? Don't get overly focused on these "tax-efficiency" exercises because it really depends on how much of these vehicles you use.

Yes, US equities make the most sense in a RRSP versus a TFSA, and income in TFSA with Canadian dividends in a non-registered etc. etc.

But I dont do that simply for the fact that
1) I maxout all my investment vehicles
2) I buy individual stock for the most part
3) interest rates are very low
4) My workplace pension severely limits my RRSP room anyway

For me, the higher returns of select stock means the tax savings on the gains outweigh any tax efficiency benefits. I have all my cash/fixed income non-registered simply because I dont have much and interest rates are so low. The one rule I do use is I do hold more long term US stock holdings in my RRSP. Since I maxed everything anyway, Ill make any investment in non-registered, so long as I feel like it will pay off and it is a good investment.

If you dont maximize all your limits and are planning a passive approach to investments, then you may consider following the tax efficient allocation approach. But in honest truth, it really depends on each specific situation and really don't overcomplicate it.
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xgbsSS wrote: Honest truth? Don't get overly focused on these "tax-efficiency" exercises because it really depends on how much of these vehicles you use.
+1
RCML27 wrote: Is it advisable to hold Canadian equities in an RRSP or TFSA? How about GICs in an RRSP?
With the high U.S. $, is it better to hold off buying U.S. $ priced equities and ETFs to avoid paying the high currency conversion and just stick to the Canadian company U.S. ETFs like VFV?
But if you want to maximize your returns with US/foreign equities, whether in RRSP orTFSA, here are suggestions:

Link to old RFD post...

To save on USD-CAD conversion, search this forum for the Norbert's Gambit strategy.
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Nov 30, 2015
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What about international equities/ADRs?

Are there any countries that consider TFSA as a retirement account and do not withhold taxes on Dividends?
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Whatever gives you the highest total return (growth plus income) should go into your TFSA. Fixed income should go into your RRSP. But instead of GICs, you should consider longer term investments with maturities that coincide with your retirement years - strip bonds and real return bonds. Once you convert to a RRIF, add REITs for the monthly income. Unless you need the income now, and are in the lowest tax bracket, I would not invest in Canadian dividend paying stocks at all.
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akaManny wrote: Whatever gives you the highest total return (growth plus income) should go into your TFSA. Fixed income should go into your RRSP. But instead of GICs, you should consider longer term investments with maturities that coincide with your retirement years - strip bonds and real return bonds. Once you convert to a RRIF, add REITs for the monthly income. Unless you need the income now, and are in the lowest tax bracket, I would not invest in Canadian dividend paying stocks at all.
Care to share the resources or data that support your theory?
From my (and many others) pov dividend growth and compounding are the most powerful tools in investing. So i must disagree with what you said
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petera89 wrote: Are there any countries that consider TFSA as a retirement account and do not withhold taxes on Dividends?
Don't know for sure, but retirement accounts usually have some restriction or disincentive for taking money out before retirement age, and may also have mandatory withdrawals after a certain age. RRSPs are tax deferred so if you withdraw while you are working you will likely pay high taxes, plus lose that contribution room forever (except for special cases like Home Buyer's Plan). In the USA, IRAs and Roth IRAs have restrictions on withdrawal before retirement age.

TFSAs do not have any restrictions or taxes on withdrawals so they are not considered retirement accounts.
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Deepwater wrote: Don't know for sure, but retirement accounts usually have some restriction or disincentive for taking money out before retirement age, and may also have mandatory withdrawals after a certain age. RRSPs are tax deferred so if you withdraw while you are working you will likely pay high taxes, plus lose that contribution room forever (except for special cases like Home Buyer's Plan). In the USA, IRAs and Roth IRAs have restrictions on withdrawal before retirement age.

TFSAs do not have any restrictions or taxes on withdrawals so they are not considered retirement accounts.
Do you know other countries that have same treaties as the us?
I know Swiss stocks have 30% withholding taxes even in rrsp but what about UK, Japan, Germany, Sweden and France?
Also does ADRs are subject to currency fluctuation of both US and the country of the equity?
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petera89 wrote: Care to share the resources or data that support your theory?
From my (and many others) pov dividend growth and compounding are the most powerful tools in investing. So i must disagree with what you said
I'm not against dividends when you need steady income to supplement other sources, such as during retirement. Even then, I have not seen any studies comparing Canadian dividend stocks versus non-Canadian dividend stocks over the long term. But you need to ask yourself, how much do you want to invest in a relatively small economy in the hope that those companies can raise their dividends as much as other companies in larger economies? If you do not need that income at a particular stage in your life, why tie up capital in generating that income that you constantly need to reinvest?

If you have a long term horizon, then you should be investing in what likely will give the highest total return. My source is the 2013 Morningstar Andex chart, for returns since 1950:
1. US Small Stock Total Return Index - 13.4%
2. US Large Stock Total Return Index - 11.0%
3. TSX Composite Total Return Index - 9.9%

Same number 1. for the last 20 years and 30 years
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petera89 wrote: What about international equities/ADRs?

Are there any countries that consider TFSA as a retirement account and do not withhold taxes on Dividends?
In general, stocks that have their head office in the UK (doesn't include Ireland) do not deduct withholding tax from dividends. They trade as ADRs on American exchanges so you can buy conveniently with USD.

Link to Seeking Alpha article with Withholding Rates by Country...
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SAM3674 wrote: In general, stocks that have their head office in the UK (doesn't include Ireland) do not deduct withholding tax from dividends. They trade as ADRs on American exchanges so you can buy conveniently with USD.

Link to Seeking Alpha article with Withholding Rates by Country...
Timely posting. Just a minute ago I bought 180 shares of GSK-ADR in my TFSA. This is not subject to the 15% withholding tax as for US dividend stocks held in non-registered and TFSA accounts.
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petera89 wrote: Do you know other countries that have same treaties as the us?
I know Swiss stocks have 30% withholding taxes even in rrsp but what about UK, Japan, Germany, Sweden and France?
Also does ADRs are subject to currency fluctuation of both US and the country of the equity?
From my transaction records of various RRSP, TFSA and non-sheltered accounts:

ABB is a Swedish-Swiss stock with head office in Switzerland and has no withholding tax from dividends, even in a non-sheltered account.

TOT is based in France and it seems that withholding tax is deducted from a sheltered RRSP account (due to having no tax treaty with Canada with respect to RRSPs).

VOD, GSK, AZN, DEO, and BBL - to name a few - have UK domicile and there are no withholding taxes deducted from TFSA accounts. Interestingly, BBL also trades as BHP and there are withholding taxes deducted from latter. Same situation with Royal Dutch Shell RDS.A and RDS.B - one has withholding tax deducted whereas other does not, from what I recall.

Edit: See the link to the SA table in my previous post.
Last edited by SAM3674 on Dec 12th, 2016 1:50 pm, edited 1 time in total.
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STP123 wrote: Timely posting. Just a minute ago I bought 180 shares of GSK-ADR in my TFSA. This is not subject to the 15% withholding tax as for US dividend stocks held in non-registered and TFSA accounts.
Shhh... it's a well kept secret. I've posted numerous times on ADRs domiciled in the UK which pay dividends without withholding tax, but the info seems largely overlooked even by the experts and gurus on RFD.

A good time to buy UK dividend paying stocks - as well as other European stocks - would have been after Brexit, when prices plummeted and investors largely ignored ex-dividend dates during panic selling.

Edit: I'm a bit wary of GSK. Although near its 52-wk low, the dividend payout ratio appears enormous and I'm wondering if it's in danger of being cut.
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SAM3674 wrote: From my transaction records of various RRSP, TFSA and non-sheltered accounts:

ABB is a Swedish-Swiss stock with head office in Switzerland and has no withholding tax from dividends, even in a non-sheltered account.

TOT is based in France and it seems that withholding tax is deducted from a sheltered RRSP account (due to having no tax treaty with Canada with respect to RRSPs).

VOD, GSK, AZN, DEO, and BBL - to name a few - have UK domicile and there are no withholding taxes deducted from TFSA accounts. Interestingly, BBL also trades as BHP and there are withholding taxes deducted from latter. Same situation with Royal Dutch Shell RDS.A and RDS.B - one has withholding tax deducted whereas other does not, from what I recall.
Withholding tax applies to RDS.A and not to RDS.B. I have RDS.B in my non-reg. US account and have not had any withholding tax deducted. Of course, it sits there attracting its full marginal tax rate, so I'll be moving it to the TFSA to completely shelter it.
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SAM3674 wrote: Shhh... it's a well kept secret. I've posted numerous times on ADRs domiciled in the UK which pay dividends without withholding tax, but the info seems largely overlooked even by the experts and gurus on RFD.

A good time to buy UK dividend paying stocks - as well as other European stocks - would have been after Brexit, when prices plummeted and investors largely ignored ex-dividend dates during panic selling.

Edit: I'm a bit wary of GSK. Although near its 52-wk low, the dividend payout ratio appears enormous and I'm wondering if it's in danger of being cut.
Yes, there may be a small chance of that (I see it unlikely however). If it does happen, I will buy more. PFE cut its dividend on me back in 2009. Since the cut, it has returned about 15% annualized.
Edit: PFE just declared its 2017 first quarter dividend of $0.32/share, a 6.7% increase. It's finally back to the same dividend before the cut back in 2009.
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Thanks. That table lists default withholding tax rates. For example it shows U.S. as 30%. But there is a Canada-US tax treaty that reduces that to 15% for Canadian investors (you may have to submit a W-8BEN form to your broker), and further reduces it to 0% for retirement accounts like RRSP, RRIF etc. (as noted above, TFSA is not considered a retirement account). In the comments on the web page there is some discussion of subtleties that are not listed in the table.
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SAM3674 wrote: From my transaction records of various RRSP, TFSA and non-sheltered accounts:

ABB is a Swedish-Swiss stock with head office in Switzerland and has no withholding tax from dividends, even in a non-sheltered account.

TOT is based in France and it seems that withholding tax is deducted from a sheltered RRSP account (due to having no tax treaty with Canada with respect to RRSPs).

VOD, GSK, AZN, DEO, and BBL - to name a few - have UK domicile and there are no withholding taxes deducted from TFSA accounts. Interestingly, BBL also trades as BHP and there are withholding taxes deducted from latter. Same situation with Royal Dutch Shell RDS.A and RDS.B - one has withholding tax deducted whereas other does not, from what I recall.

Edit: See the link to the SA table in my previous post.
Thanks for the info, that answered all my questions
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Sometimes it is easier to think of which investment types to move to your non-registered account first when your tax exempt (TFSA) and tax deferred (RRSP, RRIF, LIRA, LIF etc.) are full.
  • RRSP can hold any investments.
  • TFSA can hold any investments except US dividend paying stocks and US domiciled ETFs (these should preferably be held in RRSP since the US will charge withholding taxes on dividends paid in TFSA, but will not charge withholding taxes on RRSP/RRIF etc because they are considered retirement accounts. TFSA is a good place for high growth investments since you will never pay tax on the growth.
  • The decision on whether to start with RRSP vs TFSA depends on whether you will be in a higher or lower tax bracket when you withdraw the money. If you expect to be in a lower tax bracket start with a RRSP. If you expect to be in a higher tax bracket start with a TFSA. Hence young people with low income should consider starting with a TFSA then open a RRSP once all TFSA contribution room is used up.
  • Only open a non-registered account when you have no more tax sheltered room in TFSA and RRSP. Then you need to decide which asset classes to move to non-registered account first. Generally investments that incur low taxes should be moved first.
  • Move non-dividend paying stocks first since their growth comes from capital gains that have a lower tax rate
  • Move Canadian dividend paying stocks next because of preferential treatment of the dividend tax credit on qualified Canadian dividends
  • Move US dividend paying stocks next because the US market tends to pay lower dividends than international stocks
  • International dividend paying stocks should me moved next because their dividends tend to be higher than US
  • The last to move is interest paying investments like bonds and GICs because interest is taxed at the highest marginal tax rate. Another level of detail is move short term fixed income investments before longer term investments because the longer the term, generally, the higher interest
  • Some people say with interest rates so low, it's OK to hold interest bearing securities in non-registered since they won't incur much tax. Perhaps, but look way ahead and maybe interest rates will go back up, then driving a need to shift them back to a tax-sheltered account. The jury's still out but I am keeping fixed income in tax deferred accounts (RRSP & LIRA)
I solemnly swear, to never assume I have an inkling at which direction the market will head, and to never make any investments based on a timing strategy.

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