[vi123]

Hi everyone,

I have some US stocks (VTI and VXUS) in my non-registered account with RBC. I know that their dividends are subject to the 15% withholding tax.

However, I file a US tax return and have a SSN. So, is there any way for me to avoid the tax? Perhaps by including those securities on my US tax return instead of my Canadian tax return? Or maybe I should move them to a US-based brokerage?

Any thoughts?

NOTE: Our RRSPs are already full, before someone suggests moving the US securities there..

 

[0xCC]

Just let me say right from the start that I have no idea how US taxes work. So I'm asking questions to maybe point you in the right direction.

Are dividends in the US not taxed at all? If you file a tax return in the US do you have to disclose your world-wide income?

On the Canadian side you don't "lose" the withholding tax on US dividends. The IRS has taken that money and they won't give it back to you but when you file your Canadian taxes you get to claim the amount withheld as a tax credit. Basically tax that you have already paid, so you will just owe the CRA however much more you would need to pay based on what your marginal tax rate is. So if you were in the 20% tax bracket you would only have to pay 5% more. If you were in a tax bracket that is lower than 15% you would get a refund.

I'm not really sure it would be worth jumping through all the hoops of putting the US stock in a US brokerage account just to avoid paying the withholding tax that you are probably going to have to pay when you file your taxes anyway.

 

[fatcat]

Hi everyone,

I have some US stocks (VTI and VXUS) in my non-registered account with RBC. I know that their dividends are subject to the 15% withholding tax.

However, I file a US tax return and have a SSN. So, is there any way for me to avoid the tax? Perhaps by including those securities on my US tax return instead of my Canadian tax return? Or maybe I should move them to a US-based brokerage?

Any thoughts?

NOTE: Our RRSPs are already full, before someone suggests moving the US securities there..

also, be aware that you will need to file a pfic for each of those etf's ... passive foreign investment company ... form 8621

 

[AltaRed]

Hi everyone,

I have some US stocks (VTI and VXUS) in my non-registered account with RBC. I know that their dividends are subject to the 15% withholding tax.

However, I file a US tax return and have a SSN. So, is there any way for me to avoid the tax? Perhaps by including those securities on my US tax return instead of my Canadian tax return? Or maybe I should move them to a US-based brokerage?

Any thoughts?

When you say you file a US tax return, what do you mean? A NR1040? or a 1040? In other words, you can only be a tax resident of one country at one time. Either the US return dominates and you get a foreign tax credit for taxes paid to Canada, or vice versa. If you are a tax resident of Canada per the treaty then the primary declaration of income is in Canada and US withholding of 15% is appropriate.

Did you file a W-8BEN or a W-9 with your Canadian broker?

 

[My Own Advisor]

You should have been able to file a W-8BEN form with your broker; actually, if you're with a big bank brokerage they usually file it on your behalf.

I would confirm that first as a Canadian resident.

Then, if you hold US ETFs or US stocks in a taxable account, and said ETF or stocks pay a dividend, I believe, withholding tax is automatically charged to your account.

I don't see any way out of avoiding the taxation, the withholding tax.

Potentially going forward, re-structure holdings in accounts to keep US assets inside 1) RRSP, then 2) TFSA, then 3) if you need to, non-registered. The former two will not result in many tax headaches. The latter has more complicated withholding tax issues, foreign income reporting to deal with, etc.

 

[0xCC]

My understanding is that US dividends paid in a TFSA are subject to US withholding taxes since the US does not recognize the TFSA as a retirement account. In that case the tax is withheld by the US and since the holdings are in a tax free account there is no way to claim the foreign tax credit on those withheld taxes.

Of course if your marginal tax rate is higher than the withholding tax rate then this might not be a bad situation.

 

[My Own Advisor]

That's how I see it as well, and I suspect most people are paying more than 15% tax.

re: if marginal tax rate is higher than the withholding tax rate (15%) then this might not be a bad situation.

 

[Nerd Investor]

No way to avoid the tax in a non-reg account, but the Tax Treaty limits what the US can impose to 15% (assuming you're a resident of Canada). If you're a resident of Canada who is a also a US citizen, this is how it should look with respect to your dividends: Report dividends on your US tax return, tax should be limited to 15%. If the taxes were withheld, make sure you input that on your US return as well. In Canada, you pay tax on the dividends, claim the 15% tax imposed by the US as a tax credit.

Anyway, that's how it would work with stocks, but with mutual funds (including ETFs) you may be forced to file PFICs as fatcat mentioned which are a huge pain.

 

[Spudd]

also, be aware that you will need to file a pfic for each of those etf's ... passive foreign investment company ... form 8621

Why would you need to file a PFIC, those are American ETFs?

 

[Eclectic12]

That's how I see it as well, and I suspect most people are paying more than 15% tax.
re: if marginal tax rate is higher than the withholding tax rate (15%) then this might not be a bad situation.

Depends ... I've also heard of people whose broker did not register the W8-BEN (or skipped getting one from the client) so that they were charged by the IRS 30% withholding tax.

I've also heard of people who didn't read the paperwork from the US agent (ex. employee stock program, registered the shares with the US company for DRIP purposes), didn't fill out the W8-BEN form to claim the reduction from 30% to 15% that Canadians can be granted.


Cheers

 

[fatcat]

Why would you need to file a PFIC, those are American ETFs?

indeed you wouldn't (need to file) because i am mistaken .. i thought those were vanguard canada funds and of course spaced out that vti is the whole us market from vanguard usa

i have pfic on my mind because my tax guy tells me that this year we will start to file pfic's on etf's (canadian et's only) where before we have only had to file them on mutual funds

'if you file american taxes think twice before buying any canadian etf

 

[vi123]

Thanks everyone. Guess there's no way around it. I'll keep doing what I'm doing!

 

[jrsaballa]

Hi

I was asking the same kinds of questions as you before...

So just to say, whatever you were taxed in the U.S. may be used as a foreign tax credit in Canada

If you moved to a country like U.K. where there is no tax treaty between U.S. then it could be very well ZERO

 

[AltaRed]

Have you told the US and the UK that they don't have a tax treaty? https://www.irs.gov/Businesses/International-Businesses/United-States-Income-Tax-Treaties---A-to-Z

 

[jrsaballa]

ok so they have one, but it is still zero taxation

 

[jrsaballa]

Can I ask whether you are using IRS FORM 1040NR like me?

And do you already have a W7 form filled out?

 

[Eclectic12]

... So just to say, whatever you were taxed in the U.S. may be used as a foreign tax credit in Canada

If you moved to a country like U.K. where there is no tax treaty between U.S. then it could be very well ZERO

Have you told the US and the UK that they don't have a tax treaty? https://www.irs.gov/Businesses/International-Businesses/United-States-Income-Tax-Treaties---A-to-Z

ok so they have one, but it is still zero taxation

YMMV ... I was thinking that the Canada - UK tax treaty would mean that for a UK resident, the RRSP withdrawals would have some sort of help for double taxation of withdrawals.

Instead I found a HM Revenue & Customs bulletin that said the treaty did nothing for an RRSP. The issue according to the bulletin the treaty depends on Canadian and UK taxes being leved at the same time. Where one sells an asset in the RRSP ... this is not taxable in Canada where it is in the UK. When the withdrawal occurs, it is taxable in Canada and not taxable in the UK. Since the taxes occur at different times, the article said the tax treaty provides no help.

Fun and games ... it is not the simple situation articles imply it is.


Cheers