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I have started a TFSA and am going to do some dripping. I understand that if I hold a US security which produces dividend income in my TFSA it will be charged the dividend withholding tax and that I will not be eligible for the foreign tax credit.

Now perhaps this is a silly question: How do I know which securities are liable to the tax?

I understand that Canadian securities are not liable. Does this mean that any security obtained via the TSX are considered Canadian?
Or are Foreign companies that are listing on the TSX still liable to the withholding tax? If so, how do I determine which companies are solely Canadian and exempt from the withholding tax for Canadian Investors?

Perhaps I have this all wrong, then of course you see how confused I am. Any information would be useful as I would like to avoid the withholding tax within my TFSA and put those securities in my RRSP.

Thanks!
 

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it's not a question of canadian companies being "exempt from the withholding tax."

the non-resident tax that's withheld from US dividends has nothing to do with canadian tax authorities. It's withheld pursuant to US tax policy, and specifically for canadian taxpayers, according to the tax convention between the 2 countries. Monies withheld frrom US source dividends are remitted to the US treasury.

how can we tell a canadian dividend that's eligible for a dividend tax credit if held in a non-registered account ? Sometimes we can't know for sure just because a company has a tsx listing. There are canadian companies that trade only in the nasdaq and have no toronto listing, for example, although i would suppose that few of these are paying significant dividends.

there are also foreign companies with no operations in this country, that nevertheless list their stock on toronto, presumably in order to gain access to canadian capital during a financing. I don't know how their dividends are treated in canada because i've never owned any of these. In addition, among income trusts i've noticed one or 2 with hybrid distributions, which probably means that if i've noticed one or 2 there likely to be a few more.

in every case the final authority on the nature of a dividend will be the individual company itself, and information about the nature of their dividends will be clearly posted on the company website.

canadian stocks that are interlisted - that is, they trade both in toronto and on a US exchange - still maintain their canadian dividend tax credits and their dividends are not subject to any US withholding tax even if they were purchased on that US exchange and subsequently held in a canadian taxpayer's US account with a canadian broker.

you're right that US dividends credited to a TFSA will be subject to US withholding & the canadian taxpayer won't be able to claim a tax credit. The situation for a RRSP is better, as you mention, because there's no withholding. Keep in mind that your broker will convert that US dividend to CAD at an exchange rate that benefits the broker, not the client ... unless you happen to have a USD denominated RRSP at one of the very few brokers that can handle this, such as Questrade
 

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As a generalization TSX listings are ok in TFSA, you pay no witholding taxes.

Anything else, listed on the NYSE, youpay witholding taxes.

Plus all of the factors mentioned by humble.

Simplest way, also the most time consuming. Is to check on each companys website that you are interested in investing in.
 
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