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Discussion Starter · #1 ·
Hello all,

I was hoping to get some feedback. Here is my situation: I have $15,000 room in my TFSA and I have $15,000 USD cash lying around not doing me any good. Since the USD is nearly at par with the CAD, I don't want to exchange the USD to CAD to invest it.

I would like to buy some dividends paying stocks for a long-term investment, but I would like to avoid losing 15% withholding tax from the US goverment if I invest in a US company. I've been reading that if you invest in an interlisted canadian company on the NYSE (for example, Enbridge, Telus or BCE) I can buy the stocks using USD in my Questrade account and receive dividends paid to me in CAD (I think CAD?) without the withholding tax applied since the headquaters for the company is in Canada.

Has anyone played around with a similar situation?

Are dividends paid in CAD without having any conversion fees by the broker?

Other info: I have no room in my RRSPs.

thanks for any answers...
 

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I don't think that this will work.
If you buy shares of these interlisted companies, you'll get the shares listed on the US exchanges paying dividends in USD, and I think that you'll pay the withholding tax. Only RRSP's are excempt from paying the American 15% tax.

If you want to avoid all of that, buy the interlisted companies, and then get your broker to journal the US listed shares to Canadian shares. Then you'll own shares on the TSX, and not have to worry about the currency exchange and withholding tax. You may wish to call first to ensure that they can, and know how to do this.

Of course, you'll give up the dividend tax credit in the TFSA, but everything in there is tax free, after all!
 

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This was new to me, but it was interesting to learn that the important thing is that the head office is listed here in Canada, which would actually make them a Canadian company.
From a thread on REITs earlier:

The issue is where the head office is listed and not where the stock is traded.

For example I have shares in a company known as MFC Industrial Ltd (MIL on the NYSE) that is not listed on the TSX and pays dividends in USD but is nevertheless headquartered in Canada and pays Cdn eligible dividends and there are no withholding tax issues in the non-registered account where I hold it.
 

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it's a good idea for this poster to buy an interlisted stock in USD, provided the US market is liquid enough to give him a fair price. He's already said he doesn't want US dividends from US stocks & he has a slight excess of USD.

buying his canadian stock in US markets accomplishes the first half of a gambit trade. He will become the proud owner of canadian stock that can be priced & sold in canadian dollars without any broker FX fee whatsoever.

turning now to the dividends, the OP & others should research where & in which currency to keep their canadian stock. First of all, there will be no US withholding on dividends from canadian stocks even if they are held in US account. In addition, canadian stock held in US account will be eligible for full canadian dividend tax credits. The broker will send a T5 for such dividends at tax time. (small warning: i am not sure what Interactive Brokers does about this situation; others have posted here in cmf forum that IB does not recognize the canadian dividend tax credits which do, in fact, apply, however this could be inaccurate.)

the heretical truth is that a significant number of canadian companies pay their dividends in USD only. Companies like barrick, all the big miners, encana, talisman, half the big energies, potash, agrium, methanex, thomson reuters, magna, brookfield office - this list goes on & on - all pay dividends in US dollars.

investors who hold these companies in canadian account will be charged hidden FX fees by their brokers as these US $ dividends get converted, immediately after their issue, from USD to CAD. The actual moment of conversion is when the bulk dividend stream passes from the CDS system to the brokers, which must then divide up the amounts into sub-allocations for each client who beneficially owned the stock on the record date.

it's a bit shocking, but the brokers do not reveal any hint of the FX fee they charge on canadian dividends on their statements. They also fail to train their licensed representatives about this fact. The result is that some reps - usually the more experienced - know about this, and some do not. Meanwhile, the vast majority of investors never even guess.

after all, when canadian investors buy canadian stocks from canadian brokers on the toronto stock exchange & pay in canadian dollars, why would such investors ever imagine that the brokers are going to charge them a 2% FX fee on the dividends. The story sounds like something out of paranoiawilldestroia. But it's true.

the solution, of course, is to hold such companies in US account in order to receive the dividends in US $ without any 2% FX haircut.

TMX stock quotes show whether dividends are paid in CAD or USD. I've done some spot checks & i believe the tmx data is up-to-date. Talisman, for example, has recently switched from paying its div in cad to paying it in usd. The tmx shows the correct currency.

companies do not frivolously alternate the currency in which they pay their dividend. The choices are embedded deep in their accounting systems, have to do with where are their businesses principally conducted & where are their important shareholders. Talisman's decision, for example, was years in the making. Talisman will not switch back.

in the case of this poster, his 3 stock selections all pay dividends in CAD, so if he buys them in USD in US account, he should ask his broker to move them to CAD account as soon as payment has settled.
 

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Discussion Starter · #5 ·
thanks for all the information humble_pie.

I learned quite a bit from your post!


it's a good idea for this poster to buy an interlisted stock in USD, provided the US market is liquid enough to give him a fair price. He's already said he doesn't want US dividends from US stocks & he has a slight excess of USD.

buying his canadian stock in US markets accomplishes the first half of a gambit trade. He will become the proud owner of canadian stock that can be priced & sold in canadian dollars without any broker FX fee whatsoever.

turning now to the dividends, the OP & others should research where & in which currency to keep their canadian stock. First of all, there will be no US withholding on dividends from canadian stocks even if they are held in US account. In addition, canadian stock held in US account will be eligible for full canadian dividend tax credits. The broker will send a T5 for such dividends at tax time. (small warning: i am not sure what Interactive Brokers does about this situation; others have posted here in cmf forum that IB does not recognize the canadian dividend tax credits which do, in fact, apply, however this could be inaccurate.)

the heretical truth is that a significant number of canadian companies pay their dividends in USD only. Companies like barrick, all the big miners, encana, talisman, half the big energies, potash, agrium, methanex, thomson reuters, magna, brookfield office - this list goes on & on - all pay dividends in US dollars.

investors who hold these companies in canadian account will be charged hidden FX fees by their brokers as these US $ dividends get converted, immediately after their issue, from USD to CAD. The actual moment of conversion is when the bulk dividend stream passes from the CDS system to the brokers, which must then divide up the amounts into sub-allocations for each client who beneficially owned the stock on the record date.

it's a bit shocking, but the brokers do not reveal any hint of the FX fee they charge on canadian dividends on their statements. They also fail to train their licensed representatives about this fact. The result is that some reps - usually the more experienced - know about this, and some do not. Meanwhile, the vast majority of investors never even guess.

after all, when canadian investors buy canadian stocks from canadian brokers on the toronto stock exchange & pay in canadian dollars, why would such investors ever imagine that the brokers are going to charge them a 2% FX fee on the dividends. The story sounds like something out of paranoiawilldestroia. But it's true.

the solution, of course, is to hold such companies in US account in order to receive the dividends in US $ without any 2% FX haircut.

TMX stock quotes show whether dividends are paid in CAD or USD. I've done some spot checks & i believe the tmx data is up-to-date. Talisman, for example, has recently switched from paying its div in cad to paying it in usd. The tmx shows the correct currency.

companies do not frivolously alternate the currency in which they pay their dividend. The choices are embedded deep in their accounting systems, have to do with where are their businesses principally conducted & where are their important shareholders. Talisman's decision, for example, was years in the making. Talisman will not switch back.

in the case of this poster, his 3 stock selections all pay dividends in CAD, so if he buys them in USD in US account, he should ask his broker to move them to CAD account as soon as payment has settled.
 
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