As a Canadian, where should I hold my US DIVIDENDS? 🇺🇸🇨🇦 This is a question I get asked all the time, in fact I was just asked this question on stage at BlossomCon Toronto last month. I go into much further detail in my full-length YouTube video below but here is the quick summary, from worst to best: 👇 ####################### WORST - Non-Registered ❌️❌️ I do NOT recommend holding US dividends in your non-registered account, why? Because you are taxed HEAVILY! US Dividends get the worst tax treatment, there's 2 parts to it: Part 1: Withholding Tax 🇺🇸 US Dividends face a 15% withholding tax that's taken right off the top. So instead of receiving $100 in dividends, you only receive $85. That $15 is taken off immediately and sent to the US government. Thankfully the Canadian government offers a Foreign Tax Credit to avoid double taxation. So you pay the 15% tax on US dividends upfront but then you get that money back from the Canadian government with the tax credit. Part 2: Canadian Tax 🇨🇦 The tax credit helps you "avoid" the US taxes but you CANNOT avoid the Canadian taxes. Unlike Canadian dividends, the Canadian Dividend Tax Credit does NOT apply to US dividends. That means that your US dividends are FULLY taxed at your marginal tax rate. If you make $100K, you're in the second tax bracket so any US dividends you earn, you pay 30% of that in taxes... In contrast, Canadian dividends would only be taxed about 9%.... big difference! ############### Better - TFSA 🥈 The second best account for US dividends is the TFSA. (Note the FHSA will be treated the same as the TFSA here) The TFSA is tax free, from the Canadian side. But you cannot avoid US taxes in the TFSA... So any US dividends you earn in a TFSA will face a 15% withholding tax to the US government. And there's NO WAY to avoid it. You can't claim a foreign tax credit in the TFSA, that 15% is gone. That can hurt but it's still much better than paying 30% or 40% in taxes like you would in a non-registered account. ############### BEST - RRSP 🏆🥇 The BEST account for US dividends is the RRSP. The RRSP is the ONLY account where US dividends are fully tax sheltered. No Canadian taxes inside the RRSP and you waive the 15% withholding tax on US dividends. So if you're expecting $100 in dividends, you receive the full $100. (Note: the LIRA and RRIF also have this exemption on that 15% tax) ############# Important Point #1 - Use USD 🇺🇸 To waive the 15% tax on US dividends, the ETF must be in US Dollars. CAD versions of US ETFs will not work here. I have a whole video and a whole Blossom post about this important point: 👇 https://link.blossomsocial.com/7uYa/me8x9yze ############# Important Point #2 - Ensure the RRSP Makes Sense for You ✅️ Avoiding tax on US dividends is NOT the reason to open an RRSP. Make sure the RRSP makes sense for you based on your income, tax bracket, retirement plans etc. If you're in the bottom tax bracket, the RRSP won't help you. Stick to the TFSA instead. But if you're already using the RRSP, then definitely hold your US dividends there to make the most of those tax savings! Again I go into further detail in my latest YouTube video below, happy investing! 😁 https://youtu.be/rcuXIBtJ1yA?si=MYg-PtHEJewk3qnA
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52 Comments
Chris Snow@xenus · 4d
How does Xeqt work in an RRSP? Are the US holdings portion of the ETF exempt from the 15% to US withholding tax?
Sanjay @vulcaninvestor · 4dEdited
For use/cad fx CDRs is a great solution
Jay St John@stjohndomino · 5d
As a new investor (beginning this month) I find sticking with CAD is a good starting point, but certainly want to explore USD options later. Is it wise to do this, or does time in the market translate into this matter as well, where I should get involved in USD now for optimal returns
Martin McClellan@star87 · 5d
If I could put them all on a RRSP I would but unfortunately in order to keep growing my dividends I need to keep investing in my non registered account. I already have my TFSA maximized as well. Building my FHSA as well.
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