# Capital Gains and dividend taxes on US or foreign stocks and ADR listed on US market



## digitalatlas (Jun 6, 2015)

Hi,

This seems pretty straight forward for Canadian stocks and dividends...50% of tax rate for CG, and roughly 50% for eligible Canadian dividends (depending on province, etc.).

What if I sell a stock listed on a US exchange like NASDAQ or NYSE? Do I still pay CG tax at 50% of my tax rate? Is there a dividend tax credit for dividends paid by the US stock? It seems like I need to fill out W8BEN to reduce witholding tax to 15% from 30%, and maybe a foreign income tax credit?

What about a ADR listed on US exchange, including OTC? Let's say it's a Chinese or Hong Kong stock that's an ADR listing. How are CG taxed? How are dividends taxed? I've read that ADR are treated just like a US stock...is this true? Is witholding tax unrecoverable?

Thanks


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## Jimmy (May 19, 2017)

Dividends have a complicated formula w a gross up but are taxed at in ON rates up to ~ 18% combined for income under $100K. 

You pay CG of 50% on the gain x your tax rate is right for US stocks, no div tax credit. No wholding tax on div if US stocks held in an RRSP but believe you have to fill out a form. In non reg acct, you pay them but they are recoverable and you apply for a foreign investment tax credit

Don't know about the rest.

https://www.taxtips.ca/filing/foreigntaxcredit.htm


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## Spudd (Oct 11, 2011)

Capital gains are the same regardless of the type of stock (Canadian, US, ADR, whatever). 

Dividends for foreign stocks (US, ADRs) are taxed at your marginal rate as normal income. You do get a credit for any tax that was withheld so you don't double-pay (in non-registered accounts, of course).


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## Eclectic12 (Oct 20, 2010)

digitalatlas said:


> ... This seems pretty straight forward for Canadian stocks and dividends...50% of tax rate for CG, and roughly 50% for eligible Canadian dividends (depending on province, etc.).


You seem to be lead astray .... likely by your particular tax rate.

The CG part is good but using a $43K income earner in Ontario for 2018, the combined Fed/provincial tax rate is 24.15%. This would suggest by your estimation the eligible dividends rate would be a little under 12% whereas the TaxTips.ca web site says it is a credit of 1.20%, until the next tax level (next level is 29.65% with eligible dividends at 6.38%). https://www.taxtips.ca/taxrates/on.htm

The favourable tax rates at lower income levels is likely why retirees or those starting their careers like eligible dividends.




digitalatlas said:


> ... What if I sell a stock listed on a US exchange like NASDAQ or NYSE? Do I still pay CG tax at 50% of my tax rate?


It all stays the same for the tax rates. What changes is that you have to convert from USD to CAD ... where the exchange rates can work for or against you, over and above what the USD CG/CL was.




digitalatlas said:


> ... Is there a dividend tax credit for dividends paid by the US stock?


No ... the DTC is reserved for Canadian eligible dividends paid by a Canadian company.

In addition to the currency conversion, I seem to recall that US stock dividends are taxed the same as employment income, the same as interest income.
https://www.theglobeandmail.com/glo...tax-pain-out-of-us-dividends/article23458617/




digitalatlas said:


> ... It seems like I need to fill out W8BEN to reduce witholding tax to 15% from 30%, and maybe a foreign income tax credit?


The W8-BEN is to notify the IRS you are a Canadian that is claiming the Canada-US tax treaty privilege of having it reduces from 30% to 15% (just like the Americans get the 25% Canadian withholding tax cut to 15% or so). It should have been in the paperwork when the account was setup ... or maybe it has been automated since it was a long time ago I setup my brokerage account.

Call the broker to make sure it is filed and check your statements if you have US stock. One of the other key benefits of the W8-BEN is RRSPs are exempt from the IRS withholding tax completely. Sadly, the TFSA is not exempt.



digitalatlas said:


> ... What about a ADR listed on US exchange, including OTC? Let's say it's a Chinese or Hong Kong stock that's an ADR listing. How are CG taxed? How are dividends taxed? I've read that ADR are treated just like a US stock...is this true? Is witholding tax unrecoverable?


CG is easy as it is the same as US stock, with the same currency exchange for reporting on the Canadian tax return.

The dividends are complicated as there may be two separate tax treaties in play. 

If the US has a tax treaty to exempt the source country from dividend withholding tax, the full value will show up to the ADR company. In a taxable account, my understanding is that the US will want their 30%, possibly reduced to 15% by the W8-BEN. A US company is paying the dividend so it will be taxed like interest.

In a taxable account, the FTC should get some/all of the US withholding tax back. Any foreign country withholding tax I believe is lost. Or holding it in a TFSA, I believe means both levels of withholding tax (if applicable) are lost. RRSP means only the US withholding tax is avoided.
http://canadiancouchpotato.com/2012/09/17/foreign-withholding-tax-explained/
http://canadiancouchpotato.com/2016/07/11/foreign-withholding-taxes-revisited/
http://canadiancouchpotato.com/2014/02/20/the-true-cost-of-foreign-withholding-taxes/

The underlined part should have a note about fixing an error then have something like "taxed as a foreign stock with no American tax or influence. Similar to say a Canadian bank shares listed on the US exchange, where no US withholding tax is taken. 

Note that some brokers report that as the end owner of the ADR is not known, they report that in some cases, the top withholding tax rate is taken no matter that Canadians may have a reduced rate through a tax treaty".

Cheers


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## Jimmy (May 19, 2017)

Just to add to the above and clarify my post. 

For US dividends: All the dividend income is taxed at your regular marginal tax rate. You have to convert to $ Cdn on your return. There is no 'gross up formula' like for Cdn dividend income or dividend tax credit. You want to have these in and RRSP ( best ) as you pay no withholding taxes. Or in a regular account, where you can recover all of the taxes wheld

https://www.theglobeandmail.com/glo...e-way-to-invest-in-us-stocks/article28819560/

Cdn Dividends: Likely you have common stock which just gets grossed up then you have a dividend tax credit - DTC. If it is shares from a 'private company' ie a CCPC. you get an enhanced div credit

https://www.taxtips.ca/divtaxcredits.htm

Only Cdn dividend income is grossed up . Then you apply the DTC div tax credit.


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## gardner (Feb 13, 2014)

digitalatlas said:


> What if I sell a stock listed on a US exchange like NASDAQ or NYSE? [ ... ] Is there a dividend tax credit for dividends paid by the US stock?


A point I didn't see clarified:

There are numerous Canadian companies that are listed on the US exchanges. For example Royal Bank (RY) is listed on the NYSE as well as the TSX. The mere fact that you buy or sell it on the US exchange does not make it a US based asset. Canadian companies typically pay tax-advantaged dividends even if you bought them in $US on the US exchange. There will be no US withholding tax on a Canadian company's dividend even if you bought them in $US on the US exchange.

A similar situation exists for ADRs where the withholding taxes are set by the location where the business is domiciled -- eg: Australia has withholding tax on dividends where the UK does not, even for ADRs you buy on NYSE or NASDAQ.

Using the exchange (NASDAQ or NYSE) as a shorthand for where the company or asset is actually domiciled is possibly misleading or confusing.


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## Eclectic12 (Oct 20, 2010)

Good point that the articles I have been checking have missed.

I can also find references to RBC saying that for some ADRs the maximum withholding tax is taken as the ADR obscures the ownership. For the example, the Canada - Country X tax treaty might reduce the 25% to 15% but the ADR will be charged 25%. Interestingly, some countries withhold the minimum or less.
https://www.theglobeandmail.com/glo...-hunters-must-beware-tax-trap/article9840189/


Cheers


*PS*

I'd like to fix my erroneous part of post # 4 that talks about two tax regimes in play for for unknown reasons - the "Edit Post" option is not available.


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