# New to discount brokers



## rglempera (Apr 2, 2011)

I recently decided to move ~$75k in RSP from MFs to iTRADE. They gave me 100 free trades to use in the first 60 days for opening my account. I intend to use a 'coach potato' strategy by purchasing ETFs. This is my first run with a discount brokerage, I have 3 questions.

1) I cannot add to this RSP account each year, as I use my max contribution in employee MFs with SunLife and cannot move those until I change employers. My initial plan within iTRADE was to open a TFSA and use that to rebalance every 6 or 12 months, by buying more of whichever ETF was underperforming to get back to my target blend. But, I'm thinking that maybe I should just rebalance within the RSP account, so I sell whatever is overperforming to free-up funds to buy the underperformers. I believe the upside of the latter approach is selling the overperformer, while the downside is making two trades (an extra $10 in fees). If I go with the former, $10 less in trade commissions and I'm supplementing my RSP savings (I should be able to afford this). MY QUESTION: is one approach clearly better than the other?

2) Can I buy funds traded on US exchanges thru iTRADE? I ask because when I put US symbols into TSX quotes they come up invalid. I'm assuming I can buy US ETF, e.g. VTI, in iTRADE but I'm not sure how. MY QUESTION: Is this possible and if so, how do I execute this trade in iTRADE?

3) Taxes vs. FX: I've been researching Coach Potato blogs and found this one: http://canadiancouchpotato.com/2010/03/05/put-your-assets-in-their-place/
I thought I didn't need to worry about dividend taxes for my RSP account, but this blog post suggests US withholding tax can apply to registered accounts. But maybe that's outdated, as the blog is from 2010? So I could potentially get my US equity fund in a USD$ ETF (assuming the answer to #2 above is yes), but then I'm thinking I'll probably lose more on the FX fees for the entire investment vs. potentially losing 15% of my dividends. MY QUESTIONS:

a) Is there a withholding tax on US dividends from Canadian ETFs (e.g. XWD) in registered accounts?
b) if "yes" to a) above, should I consider Norbert's Gambit within iTRADE to buy USD$ ETFs? I found a post about this from 2011 but maybe it's outdated http://canadianmoneyforum.com/showthread.php/6847-Norbert-Gambit-within-iTrade-RSP/page2
c) if I do Norbert's Gambit and buy VTI, I'm assuming those dividends are not subject to withholding tax, or am I mistaken? 
d) Am I over-thinking this considering my investment is relatively small? Should I just buy CDN$ ETFs for US equity (e.g. XWD) and not worry about it?

Thanks for the advice.


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## Spudd (Oct 11, 2011)

Firstly, it's a couch potato, not a coach potato. 

For your first question, all your accounts put together make up your portfolio. So if you are rebalancing by buying in TFSA and that's able to bring you to the right allocations, that's the same as selling some in the RRSP and buying something else. So, I think your TFSA strategy is a winner.

You can buy ETFs on US exchanges at iTrade, but I don't know exactly how since I don't use iTrade. Hopefully someone who is an iTrade client will see this thread. Or I'm sure you could phone them and ask for help.

US withholding tax does apply to TFSAs but not to RRSPs. "Registered accounts" includes RRSPs, TFSAs, and RESPs. So it does apply to some registered accounts, but not RRSPs. So 3a is NO for RRSPs. 

Norbert's Gambit does not make a difference to whether or not withholding tax is applied. You would only use Norbert's Gambit when you want to buy a US-listed ETF and you don't want to pay foreign exchange fees (usually around 2%) on converting your money from CAD to USD to buy it. But if you can get your desired allocation using just Canadian-listed ETFs then you don't need to worry about this at all.


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## BigMFfan (Feb 23, 2013)

re. your Question #2: You can definitely buy US ETF's in an iTrade account. Just enter the symbol and change the market from "CDN" to "US".

Note that iTrade does not have a USD RSP account. I'm not sure how much extra work it is to ensure your Gambit goes through correctly, though apparently it can be done. Also, any dividends on your US stocks or distributions from US ETF's will be converted, with them taking an extra percent+. For these reasons, I hold all of my US/ADR equities at an institution that allows USD RSP accounts.

My understanding of the withholding tax issue is that if you hold a US-based ETF in an RSP, distributions will not have the 15% withholding tax applied. Holding a CDN-based US stock ETF in an RSP will have the 15% tax deducted at some level -- and you won't be able to claim it as a tax credit.


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## AltaRed (Jun 8, 2009)

BigMFfan said:


> re. your Question #2: You can definitely buy US ETF's in an iTrade account. Just enter the symbol and change the market from "CDN" to "US".


 Can confirm this as well



> Note that iTrade does not have a USD RSP account. I'm not sure how much extra work it is to ensure your Gambit goes through correctly, though apparently it can be done. Also, any dividends on your US stocks or distributions from US ETF's will be converted, with them taking an extra percent+. For these reasons, I hold all of my US/ADR equities at an institution that allows USD RSP accounts.


iTrade does not charge any forex commission in their taxable accounts. My US dividends for Encana stock for example that sits on the Canadian side of my account is converted at precisely the Bank of Canada Noon rate for the day the dividend is paid. I cannot attest to whether this applies to their RRSP accounts but I cannot imagine why not.



> My understanding of the withholding tax issue is that if you hold a US-based ETF in an RSP, distributions will not have the 15% withholding tax applied. Holding a CDN-based US stock ETF in an RSP will have the 15% tax deducted at some level -- and you won't be able to claim it as a tax credit.


For clarity for the OP, what I believe Big MFfan is saying is that if you hold, for example, a US domiciled ETF (like Vanguard VTI on the NY Stock Exchange) in your RRSP, there is no 15% withholding. But if you bought the Vanguard Canadian equivalent of the US market on the Toronto Stock Exchange, this 15% withholding would be charged and not recoverable within the RRSP. So be careful of which ETF goes into the RRSP (same thing happens with mutual funds).


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## Spudd (Oct 11, 2011)

Oh, good point AltaRed. I had forgotten about that detail.


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## BigMFfan (Feb 23, 2013)

AltaRed said:


> iTrade does not charge any forex commission in their taxable accounts. My US dividends for Encana stock for example that sits on the Canadian side of my account is converted at precisely the Bank of Canada Noon rate for the day the dividend is paid. I cannot attest to whether this applies to their RRSP accounts but I cannot imagine why not.


That's interesting -- my experience with US stocks in an RSP account shows they've charged a commission on my dividend payments -- the amount I received is always about 1+% less than the BoC-rate converted amount. I wonder if there is a different arrangement just for CDN companies that pay US dividends.

iTrade does treat its registered accounts differently re. FX fees -- they offer a preferential rate program for only these accounts, where you pay a quarterly fee and then have your transactions go through at the BoC rate. However, from the iTrade site: "Only trades in U.S. securities in the Scotia iTRADE® U.S.-Friendly RRSP account will be given this preferential foreign exchange rate. Cash transactions in the account involving the conversion to Canadian dollars from U.S. dollars deposited into these accounts (including U.S. dollar denominated dividends and interest) will be subject to the applicable retail foreign exchange spread charged by Scotia iTRADE at that time." So, registered account dividend payments are always converted at the retail, not spot, rate.


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## rglempera (Apr 2, 2011)

Thanks for the info guys. 

So if I buy a stock like KO that's traded on NYSE, I take a 1%+FX hit when I buy it, a similar hit when I sell it, and all of my dividends will take the same hit (even if I re-invest by buying more KO)? And same thing goes for buying US Domiciled ETFs like VTI?

I have access to USD$, but I can't make any new contribution to my iTRADE RSP (as I'm already maxing out in SunLife), and I don't think I can do USD$ trades in the TFSA, so I guess there's no better way? My plan was to buy mostly ETFs but keep ~10-15% across 3-4 stocks I like -- but taking a 2%+ hit makes me lean towards keeping it simple with just ETFs.


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