However, if you decide to use your TFSA, then keep the foreign holdings (ie. US/international equities) within an RRSP as foreign dividends will face withholding tax (15%) in a TFSA.
I understand how this would work with ETF but don't understand how I would see the tax with the e-Series funds. For example, I were to use the TD e-Series US index and International Index funds in a TFSA and RRSP how would the 15% be withheld? A yearly tax bill? Or just as lower performance in the TFSA?
There's no way to avoid the US withholding tax if you hold a Canadian-domiciled fund, whether it's a mutual fund or an ETF. You have to hold a US-domiciled ETF directly in your RRSP to avoid the withholding tax. I don't know of any way to avoid paying withholding taxes on international funds. However, one thing to avoid is holding a US-domiciled ETF that hold international equity in your TFSA. You'll pay two rounds of withholding taxes: a withholding tax to the country in which the equities are domiciled, and a withholding tax to the US on the ETF's dividends. Either keep your international equity in your RRSP or buy a Canadian-domiciled fund.
The tax will show up as lower returns by the fund. The foreign government just takes a percentage of the dividends paid by any equities to foreigners.
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