When do your pay capital gains tax on US ETF's?
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Thread: When do your pay capital gains tax on US ETF's?

  1. #1
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    When do your pay capital gains tax on US ETF's?

    Hi - I realize that purchasing US stocks or ETF's will trigger a 15% withholding tax should you receive interest or distributions when you hold them in a non registered or TFSA account. What confuses me is capital gains, are they also taxed by some sort of withholding tax? I have heard some say that you need to be careful as a Canadian when purchasing US equities since when you sell them and there is a capital gain tax.

    In particular I am looking to purchase IAU however since that is on a US exchange I am concerned about possible capital gains taxes to the IRS. So I am considering CGL.C which costs more to hold but is purchased on a Canadian exchange in US dollars. I already have US dollars in my account and am keen to keep the trade in US dollars.


  2. #2
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    There's no withholding amount on capital gains. You will have to keep track of the adjusted cost base in $CAN, including the CAN/US exchange rate at the time you acquire and sell and report the gain or loss on your taxes in the year you sell. This is exactly the same situation as with Canadian stocks.

    If the amount of US/foreign stocks/funds you buy exceeds $CAN 100,000, you will have to file a T1135 form to the CRA, but that does not affect taxation directly.

  3. #3
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    There should actually be no withholding tax on interest either, just 15% on dividends (assuming the US ETF holds US equities. If hold stuff from other countries, it's a bit of a different ball game).

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  5. #4
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    The specific funds the O/P mentioned are all gold bullion funds that don't pay any interest or dividends.
    And to the O/P I would say given the underlying identical holdings, why mess with a US domiciled fund? There are Canadian domiciled equivalents. I hold a bit of CEF.A, but that is Gold+Silver.

  6. #5
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    Quote Originally Posted by lyl View Post
    ... In particular I am looking to purchase IAU however since that is on a US exchange I am concerned about possible capital gains taxes to the IRS. So I am considering CGL.C which costs more to hold but is purchased on a Canadian exchange in US dollars ...
    There seems to be several areas of confusion.

    The first is that where a company is domiciled will set the taxes - not what exchange one buys the stock on. For example, buy Royal Bank stock on the NYSE instead of the TSX .... Canadian tax only is at play, no US withholding tax on dividends. Buy an ETF that holds USA dividend paying stock on the TSX ... the ETF will pay the 15% US withholding tax to the IRS, on the unitholder's behalf.

    The second is that capital gains is only paid to Canada, unless one becomes a US tax resident.

    The third is the areas that US tax will or may come into play. The most common way a Canada would pay the US gov't for holding a US investment are the US withholding tax on dividends (full non-resident tax is 30%, the Canada-US tax treaty reduces this to 15% - the exception is a US limited master partnership where 35% is charged with no reduction by the Canada-US tax treaty).

    http://business.financialpost.com/pe...our-u-s-stocks
    http://www.dividendninja.com/mlp-tax...dian-accounts/

    Where one holds enough US investments, one has to file US estate tax return ... though the amount has to be high before US taxes would kick in.
    http://www.taxtips.ca/personaltax/usestatetax.htm

    On the Canadian side, as per post #2 - after exceeding CAD $100K of US/foreign stock/funds/foreign income producing property, one has to fill out more paperwork.
    http://www.taxtips.ca/filing/foreign...-reporting.htm


    Quote Originally Posted by gardner View Post
    The specific funds the O/P mentioned are all gold bullion funds that don't pay any interest or dividends.
    And to the O/P I would say given the underlying identical holdings, why mess with a US domiciled fund? There are Canadian domiciled equivalents ...
    A good catch and good question ....


    Cheers

  7. #6
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    Quote Originally Posted by lyl View Post
    ... I have heard some say that you need to be careful as a Canadian when purchasing US equities since when you sell them and there is a capital gain tax ...
    Sorry ... I missed commenting on this part.

    I can see where one could be concerned selling to trigger a large CG without planning for it. The sale being US equities only barely changes the concerns IMO.

    What the US equity sale adds that would not be in a similar sale of a Canadian equity, bought/sold in CAD is the currency conversion. One might have sold for a small loss but the currency conversion could mean a CG instead.

    The bigger issue is likely death or having to sell all at once due to a company stumble or market crash. Without a plan in place, one's income can be driven higher, OAS could be clawed back etc.


    Cheers


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