[Steve19]

Hi everyone,

I'm contemplating on using two different strategies for my TFSA next year. I will have 10k (2009 and 2010) contributions to play with and I'm debating on purchasing several individual dividend stocks, or several index ETF funds.

Are there any stipulations if I choose a dividend stock outside of Canada and place it within my TFSA? Also, let's say I chose to the index route and select an ishares or claymore ETF which does not hold Canadian companies, such as XIN, are the stipulations similar to that of choosing a non-canadian stock and placing it within my TFSA?

Thanks!

 

[Sampson]

There are no restrictions on holding foreign stocks within your TFSA. However, there are a few reasons you may not want to...

The TFSA does not currently fall under any tax treaties that allow dividends paid from certain countries (e.g. USA) to be exempt of the foreign withholding taxes.

So if you were to hold a US-based company that paid dividends in your TFSA, you'd be subject to 15% withholding tax, whereas if you held it in your RRSP, you'd pay no tax. The tax treaties are country specific so it ultimately depends on the specific holding.

 

[leslie]

To clarify that response. Distributions will have the 15% withheld at source, PLUS you will not be able to get that back when you file your own income tax return (like you would if you held the stock in a taxable account).

There is also the issue of NOT being able to hold US dollars within the account. I believe there are now 2 discount brokerages that allow US dollars in TFSA and RRSP, but the other don't. That means you have to pay for FX conversions every single time you make a trade (about 1.5 to 2%)

Conclusion. If you want exposure to US or foreign companies, buy the ETFs issued in Canada which trade in Toronto in Loonies. If the ETF invests in futures contracts you will not have any foreign dividends to worry about. Some may have a small distribution of 'foreign income' that is fully taxable, but I think that will be small. Their website will show the tax status of past year's distributions as a guide.

 

[HaroldCrump]

I believe there are now 2 discount brokerages that allow US dollars in TFSA and RRSP, but the other don't.

I know of Questrade, which is the other?

 

[moneymusing]

I was actually just thinking of this subject and now here it is!

My question: What are the tax implications of Capital gains on US stocks held inside a TFSA?

 

[HaroldCrump]

I was actually just thinking of this subject and now here it is!

My question: What are the tax implications of Capital gains on US stocks held inside a TFSA?

Capital gains are tax exempt inside a TFSA and even upon withdrawal.

 

[Jungle]

Is there witholding tax on us dividends if held in a non-registered account?

 

[rookie]

I know of Questrade, which is the other?

i think the other is RBC.

 

[Cal]

Jungle - The short answer is Yes. RRSP is the only account that is exempt from with holding taxes. With holding tax applies to TFSA and non registered accounts.

 

[Sampson]

Is there witholding tax on us dividends if held in a non-registered account?

Yes, but you can claim some/all of this back depending on your MTR.

 

[cardhu]

Yes, but you can claim some/all of this back depending on your MTR.

To clarify, you can claim some/all of the foreign withholdings in a non-reg account back, depending on your income and tax status ... it has nothing to do with your MTR.

 

[terrypk1]

Hi guys
I read through what most of you posted.
I still have a question and would appreciate any input.
I have my TFSA account with questrade. Right now I am holding some US dividend paying companies in my account. Does that mean I will have to pay US tax for the US dividend?

 

[kcowan]

You will have taxes withheld at source. Because such holdings are not taxable in Canada, you cannot officially deduct those from taxes due in Canada. Many people do it anyway. It is a shortcoming in the Canada-US tax treaty.

 

[CanadianCapitalist]

Hi guys
I read through what most of you posted.
I still have a question and would appreciate any input.
I have my TFSA account with questrade. Right now I am holding some US dividend paying companies in my account. Does that mean I will have to pay US tax for the US dividend?

As kcowan points out, the answer is yes. You'll pay a withholding tax of 15%.

The RRSP is the best place to keep US-listed stocks and ETFs.

 

[Toronto.gal]

Taxes are payable either way, be it at source, for US dividends, or at the Canadian federal level at the end of the year for Cdn. dividends.

The tax difference is that foreign-source dividends do not qualify for the dividend tax credit, which only apply to Canadian dividends and hence the former is treated as income.

Tax-treaty apply to RRSP accounts, not TFSA's.

 

[terrypk1]

Taxes are payable either way, be it at source, for US dividends, or at the Canadian federal level at the end of the year for Cdn. dividends.

The tax difference is that foreign-source dividends do not qualify for the dividend tax credit, which only apply to Canadian dividends and hence the former is treated as income.

Tax-treaty apply to RRSP accounts, not TFSA's.

Thanks people.
I didn't know that. I thought it goes for all registered accounts.
that does suck a little..but well. nothing is so easy.

 

[Toronto.gal]

Thanks people.
I didn't know that. I thought it goes for all registered accounts.
that does suck a little..but well. nothing is so easy.

The foreign tax-break is intended for retirement plans, not savings.

And just to clarify, Cdn. dividends are not subject to any tax under the TFSA.

 

[HaroldCrump]

Purely out of academic curiousity, in Canadian ETF/MF that contain a mixed bag of worlwide stocks, how are the witholding taxes tracked?
Some countries may have tax treaties with Canada and some don't.
Does the ETF/MF diligently keep track of all this?
What about US-based ETF holding mixed bag of worldwide stocks?