# Tax Effect of US Dividend



## kid5022 (Nov 14, 2010)

If i were to invest $100 in a us company that pay out $20 dividend. 
I believe i would have to pay US tax of 15% since i could not put it in my RRSP because i only have $200 left, 
My return would be 17$ assuming 1cad=1usd

I would get a foreign tax credit that i don't know what to use for.
do i get some kind of refund for the 3$ foreign tax credit?


second unrelated question any chance i could put gold/silver metals inside my TFSA? I mean coins/bars/bullions, just not paper any chance I can have it grow tax shelter?


thanks for answering guys and girls


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## slacker (Mar 8, 2010)

Just to clarify, one can hold US dividend paying stocks in RRSP.


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## kid5022 (Nov 14, 2010)

slacker said:


> Just to clarify, one can hold US dividend paying stocks in RRSP.


Sorry I didn't make myself clear, I only have 200$ RRSP contribution room.
Just to clarify, US stock dividend inside RRSP does not have to pay the 15% withholding tax


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## Cal (Jun 17, 2009)

Not the greatest example. As with $200 of contribution room remaining, you would be able to place a $100 US investment inside it, factoring in transaction fees.

Personally, I would buy the US holding in a future year, when you have more RRSP contribution room. There will be other buying opportunities, if you are really interested in a certain stock.

To hold an investment inside your TFSA it has to be able to be registered. You can buy gold/mining stocks, but I do not know of a way to register coins into the TFSA.


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## warp (Sep 4, 2010)

The $ 3 in US taxes that you paid can be used against canadian taxes otherwise payable.
This is to supposedly stop double taxation on the same income.

first convert any US taxes paid into $ canadian, ( as well as the Us div you received), if your brokerage didnt already do that on your T5

get from CRA a "foreign dividend tax credits" form...T2209.
Follow the directions ,,,fill it in....put your foreign taxes credit on your income tax return as directed.

Its a bit complicated,,,but worth doing,

Remember to also fill the "provincial " form out as well, if you cant use all the foreign taxes paid on your federal tax return, ( in other words if your foreign taxes paid credits are larger than your total federal taxes owing)

good luck.

Idiot politicians probably cant figure out a way to make it more complicated/


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## kid5022 (Nov 14, 2010)

Thanks for all the input guys
personally a student income *18% is not alot

so what Warp mention of getting the T2209 from CRA and also the provincial form is only when my brokage didnt really do that on my T5 right?

If I have no canadian tax payable (student with min income and in the past) do they get carry forward or do i get a refund on my tax return?

Assuming i don't get a refund if i do ignore this question
what if I am no long a "tax resident" of Canada? do I lose it?


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## warp (Sep 4, 2010)

1) your brokerage will only put on your T5 or T3 what foreign taxes you paid.

It is up to YOU to get the forms from CRA and apply the foreign taxes paid deduction.

2) As far as I know, ( and I"m 99% sure of this ) , foreign tax paid deductions can ONLY be used against canadian taxes otherwise payable.

If you have no canadian taxes payable....the foreign ( US) taxes deducted from your US dividends will be lost forever.
In other words, You CANNOT use a foreign tax credit to get a refund.


Good luck


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## kid5022 (Nov 14, 2010)

warp said:


> 1) your brokerage will only put on your T5 or T3 what foreign taxes you paid.
> 
> It is up to YOU to get the forms from CRA and apply the foreign taxes paid deduction.
> 
> ...


got it thanks so much


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## Eclectic12 (Oct 20, 2010)

kid5022 said:


> If i were to invest $100 in a us company that pay out $20 dividend.
> I believe i would have to pay US tax of 15% since i could not put it in my RRSP because i only have $200 left,
> My return would be 17$ assuming 1cad=1usd
> 
> [ ... ]


Others have answered the question but I thought I'd point out that there have been reports of institutions forgetting to file proper US form for the US withholding tax.

You see, the usual US with-holding tax is 30%, filing the paperwork to say you are a Canadian reduces this to the 15% figure.

I'm sure it's rare that the paperwork isn't correct but mistakes happen so it is well worth confirming that the proper amount of tax is withheld. Paying extra tax when it is not required is never fun.


Cheers


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## kid5022 (Nov 14, 2010)

Eclectic12 said:


> Others have answered the question but I thought I'd point out that there have been reports of institutions forgetting to file proper US form for the US withholding tax.
> 
> You see, the usual US with-holding tax is 30%, filing the paperwork to say you are a Canadian reduces this to the 15% figure.
> 
> ...


o wow thanks for the input mind telling me which paperwork i should fill out?
also i took a look of the us-canada tax treaty and cant the place that said that a 15% withholding is exempt if its in a register retired plan any chance someone can point me in the right direction?


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## Eclectic12 (Oct 20, 2010)

kid5022 said:


> o wow thanks for the input mind telling me which paperwork i should fill out?
> also i took a look of the us-canada tax treaty and cant the place that said that a 15% withholding is exempt if its in a register retired plan any chance someone can point me in the right direction?


Usually the broker will handle this for you so it should just be a matter of comparing the reported US dividends to what your account is credited for.

In my case, the company I was working for had an employee stock plan that mailed me the W8-BEN form to fill out for myself and send back. Being a novice and not reading carefully enough, I thought it was something to file with my Canadian tax form.

Instructions for form: http://www.irs.gov/pub/irs-pdf/iw8ben.pdf
PDF of the form: http://www.irs.gov/pub/irs-pdf/fw8ben.pdf 


Note sure about where to find it in the tax treaty - though lots of web articles and posters here have confirmed this is the case. The one exception is the TFSA where lots of web articles and posters here say that the TFSA is not classed the same as the RRSP and is therefore charged the US 15% withholding tax on dividends.


Cheers


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## kid5022 (Nov 14, 2010)

Eclectic12 said:


> Usually the broker will handle this for you so it should just be a matter of comparing the reported US dividends to what your account is credited for.
> 
> In my case, I was working had an employee stock plan that mailed me the W8-BEN form to fill out for myself and send back. Being a novice and not reading carefully enough, I thought it was something to file with my Canadian tax form.
> 
> ...


hey Eclectic12
thank you so much
yeah all the website say the same things
i actually got a tax act at home, because of a tax course i took at school
couldn't find the part on rrsp too bad
well i will keep digging and if i find anything i will post it here
cheers


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## kid5022 (Nov 14, 2010)

Forgot to ask this
is it still worth it to put it in the rrsp/tfsa for capital gains?


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## kid5022 (Nov 14, 2010)

section XVIII 7 for the can us tax treaty
for the pension 0% withholding tax


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## Eclectic12 (Oct 20, 2010)

kid5022 said:


> Forgot to ask this
> is it still worth it to put it in the rrsp/tfsa for capital gains?


You will have to look at what you think the long term capital gains will be versus any costs.

For the RRSP, keep in mind that you are deferring tax. You will still pay tax on it when the withdrawal happens. The best situation for the RRSP is where the growth of the investment being tax free has increased and when withdrawal happens, a lower income also helps tax-wise. While it grows, capital gains, dividends and US withholding taxes are avoided.

Some writers advise against capital gains due to the better tax treatment for capital gains. Their argument is that it is better to make $1 in capital gains in a non-registered account and pay your tax rate on $0.50 versus making the same $1 in the RRSP, withdraw and pay a reduced tax rate on $1.


For the TFSA, Canadian taxes are avoided, the foreign tax credit is not available but the US withholding tax will still be taken.


Whichever way you slice it, don't forget to include all of your costs.


Cheers


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## Eclectic12 (Oct 20, 2010)

kid5022 said:


> section XVIII 7 for the can us tax treaty
> for the pension 0% withholding tax


It's not clear where you are going with this so I'll assume you are thinking that this means that like the RRSP, the TFSA should be exempt from the US with-holding tax.

This link indicates that the TFSA is subject to the US with-holding tax (and also makes the point that European with-holding tax may be taken, depending on the investment):
http://www.canadiancapitalist.com/withholding-tax-tfsa-investments/

Other links:
http://telegraphjournal.canadaeast.com/rss/article/1376932
http://www.taxtips.ca/tfsa/taxespayable.htm
http://m.theglobeandmail.com/globe-...r-us-investing/article1886869/?service=mobile


If free to set me straight if I have misunderstood what you are getting at.
*grin*


Cheers


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## kid5022 (Nov 14, 2010)

Eclectic12 said:


> It's not clear where you are going with this so I'll assume you are thinking that this means that like the RRSP, the TFSA should be exempt from the US with-holding tax.
> 
> This link indicates that the TFSA is subject to the US with-holding tax (and also makes the point that European with-holding tax may be taken, depending on the investment):
> http://www.canadiancapitalist.com/withholding-tax-tfsa-investments/
> ...



o i just point out that the Canadian/US tax treaty section XVIII point 7 
us investment inside a retirement/pension plan (rrsp) does not have to pay any US withholding tax 0%


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## Eclectic12 (Oct 20, 2010)

kid5022 said:


> o i just point out that the Canadian/US tax treaty section XVIII point 7
> us investment inside a retirement/pension plan (rrsp) does not have to pay any US withholding tax 0%


True ... though as mentioned, other posts on the internet indicate that even in an RRSP, mistakes have resulted in the 15% being charged.

I'm not sure how often but it would seem that the more common error is to charge the 30% on a non-registered account instead of the 15%.


Or maybe most of the posters had more US dividend paying stocks there instead of in the RRSP.


Either way - if you know to check for this, hopefully you'll see it/fix it quickly.


Cheers


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