Dividends for Canadian Companies Bought in USD

[alexei]

Does the 15% withholding tax apply to the dividends from the stock of Canadian companies bought at American exchanges (in USD)? For instance, if I buy Royal Bank's stock on NYSE, would the tax apply to me? Also do dividends get converted from CAD to USD when they are issued?

If yes, how do they determine the exchange rate?

[humble_pie]

Does the 15% withholding tax apply to the dividends from the stock of Canadian companies bought at American exchanges (in USD)?

no, never. At least never at online canadian brokerages that belong to the big 5 canadian chartered banks. There *might* be trouble at some of the smaller privately-held brokers.

For instance, if I buy Royal Bank's stock on NYSE, would the tax apply to me?

no.

Also do dividends get converted from CAD to USD when they are issued?

dividends are converted by the brokers in all applicable cases immediately prior to distribution of said dividends into clients' accounts.

If yes, how do they determine the exchange rate?

this is a complex issue which imho is tinged with scandal. It's been elaborately discussed here on cmf forum. Unfortunately, only a handful of members appeared to grasp the truth.

dividends are issued by canadian corporations in CAD or else in USD. They are never issued in both currencies. The toronto stock exchange at tmx.com is an excellent source of precise dividend currency information.

if your dividend is issued in the currency opposite to the account in which your stock is being held - if for example the dividend is issued in USD but stock is held in canadian account - said dividend will be converted to the account currency & a high FX fee will be charged.

example: investor holds encana, a canadian co that pays dividend in USD, in canadian account because he bought it on toronto & paid canadian dollars. Investor does not understand that this stock pays its dividend in USD only & the broker is going to charge maximum foreign exchange fee on all ECA dividends.

there are dozens if not hundreds of leading canadian companies that pay dividends in USD only. Companies such as potash, agrium, encana, other big energies, barrick, goldcorp, all big miners, thomson reuters, magna, brookfield office properties ... the list goes on & on.

the reverse is also true. If investor buys an interlisted canadian stock on a US exchange, the broker is probably going to store that stock in US account. If stock is one such as Royal Bank whose dividend is paid in CAD, the broker will charge maximum FX fee to convert the dividend.

all brokers charge maximum FX fees on dividend conversions at their highest rate, because dividend payments are usually small amounts of less than $10,000 therefore belong to the lowest FX tier with the highest rate.

these operations are carried out by all or nearly all brokers silently, invisibly & without any evidence whatsoever either online or in printed account statements. Because of the millions upon millions of shares involved, this unseen theft in FX fees stolen from innocent & trusting clients is the worst widespread broker scandal ongoing at the present time imho.

even more scandalous, brokers do not train their frontline representatives at online call centres as to the true facts about the dividend FX heist which they, the brokers, are deliberately carrying out. Therefore many of these frontline reps will wrongfully assure inquiring clients that they are receiving their dividends without any FX fees.

this falsehood particularly applies to the large number of leading canadian companies that pay dividends in USD only. Millions of canadian investors do not yet understand that they can buy a canadian stock on toronto exchange at a canadian broker, pay in canadian dollars, hold said stock in canadian account ... & the broker will rob them of 2% in FX fees charged upon each & every dividend. The frontline representatives are not deliberately lying when they deny this fact, it's merely that they have not been trained to tell the truth about a very complex but hidden operation. If an investor can get to a senior manager, he will nearly always be told the truth.

the solution to this nightmare is simple. Keep your stock in the currency account in which the dividend is paid. If dividend is paid in USD, ask broker to journal that stock to US account.

conversely, if buying interlisted stock on a US exchange whose dividend is paid in CAD, ask broker to journal that stock to CAD account.

at all times, verify primary currency of dividend at tmx.com. Do not rely on brokers' frontline call centre representatives to know the facts.

this is my pet rant. Apologies to all. IMHO the FX heist by brokers on many dividends is worse than inflated fees being charged by mutual fund advisors because, so far, the dividend heist is still profoundly hidden & unknown.

[Square Root]

Good response humble. We excuse the rant.

[humble_pie]

.

i forgot to say that broker usually also makes money on the actual FX exchange rates.

if broker holds for clients' benefit 875,000 shares of a canadian stock paying a USD dividend of .23, for example, broker will receive a bulk payment from the CDS system for USD 201,250. Broker converts this to CAD at advantageous bulk rate for itself.

broker then deposits dribs & drabs of dividends into, say, 7,500 different retail accounts, charging each one the highest FX rate applicable to small amounts of money. Tch.