# tax implications



## Pano (Oct 16, 2012)

What sort of tax implications are there on a stock bought on the NYSE that is not an american company? For example, HMC, UL, or DEO?
If held in an RRSP, is it treated like an american stock?
Hope my questions make sense, I'm just trying to wrap my head around this.

Thanks

Pano


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## Xoron (Jun 22, 2010)

Pano said:


> What sort of tax implications are there on a stock bought on the NYSE that is not an american company? For example, HMC, UL, or DEO?
> If held in an RRSP, is it treated like an american stock?
> Hope my questions make sense, I'm just trying to wrap my head around this.
> 
> ...


In an RRSP, Gains / Losses are treated the same. Tax free on the gains, no credit for the losses.

Dividends would have a foreign withholding tax that you won't be able to recover, but the amount you do receive will be tax free


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## leslie (May 25, 2009)

Canada has a long list of treaties which for the most part have terms similar to the US one. So chances are, if distributions are paid out of the foreign country directly into your RRSP there will be no withholding tax deducted. http://www.fin.gc.ca/treaties-conventions/in_force--eng.asp


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## Xoron (Jun 22, 2010)

leslie said:


> Canada has a long list of treaties which for the most part have terms similar to the US one. So chances are, if distributions are paid out of the foreign country directly into your RRSP there will be no withholding tax deducted. http://www.fin.gc.ca/treaties-conventions/in_force--eng.asp


I see Ireland on that list. 

I hold the Irish domiciled Seagate Technologies in my RRSP (An ADR on the US exchanges, symbol STX). My quarterly dividend is deposited, and then a TAX amount is withdrawn. I think the treaty doesn't apply because I don't own the foreign security directly in my RRSP, but an ADR of that security that trades on the US exchanges. Which will be the same for most people trading foreign securities. 

So, expect that you might have some of the dividend withheld.


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## My Own Advisor (Sep 24, 2012)

To save on withholding tax on foreign dividends, Canadians are best-served to buy (and hold) US dividend stocks inside an RRSP.

If you're holding these dividend companies inside an RRSP or TFSA, you'll receive the full dividend. 

BP, Royal Dutch Shell (RDS.B), Unilever (UL), Westpac Banking Corporation (NYSE: WBK), BHP Billiton (NYSE: BBL), and the more....

I believe with British dividend-paying stocks, you get the full dividend in the RRSP or TFSA or non-registered but the problem with the latter is, you have pay income tax on that at your marginal rate.


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## Xoron (Jun 22, 2010)

My Own Advisor said:


> If you're holding these dividend companies inside an RRSP or TFSA, you'll receive the full dividend.


TFSA and RRSP are treated differently for US domiciled stocks. There is a withholding tax for US Dividends in a TFSA, There is none for an RRSP.

Again, my personal experience is that US listed ADR (American Depository Receipt) stocks, held in an RRSP *DO *have taxes withheld on Dividends. 

And All foreign stocks held in a TFSA have taxes withheld on Dividends.

YMMV


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## Pano (Oct 16, 2012)

Ah great! thanks for the responses.
This clarifies things.
For those with US/Foreign stocks in their RRSP, do you also have a US cash account to draw money from or have dividends go into? Is this more beneficial than having it converted to canadian $ every time?


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## Pano (Oct 16, 2012)

Just got my answer reading another thread. US accounts at TDW


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## humble_pie (Jun 7, 2009)

pano you are getting mixed advices in this thread because 1) the topic of foreign NR withholding tax applicable to US-traded ADRs & ADSs is highly complex; & 2) some of the posters here are, to put it bluntly, wrong.

with a very few exceptions, foreign countries *do* apply NR withholding tax to dividends paid into stocks that have been bundled into US-traded & US-managed ADR vehicles. 

these countries have no way of knowing whether the ultimate beneficiary owners of such intermediary-administered ADRs are holding them in a registered retirement account or not; therefore their withholding taxes are universally applied to ADR-held stocks.

therefore the canadian who buys most foreign ADRs in his RRSP - or his TFSA for that matter - is going to pay the foreign NR withholding tax on the dividend.

the major exceptions are great britain & hong kong. Along with a tiny handful of smaller states, these 2 countries do not apply NR withholding tax to any dividends paid overseas.

this is what Advisor means in message No. 5 when he lists a number of UK companies whose dividends are never subject to withholding tax, whether held in RRSP or in TFSA or in non-registered account, whether held indirectly through a US-traded ADR or directly via buying the shares on the london stock exchange.

turning now to US NR withholding tax on US source dividends, these are exempt from such tax in RRSPs by reason of the canada/US tax convention. TFSA accounts are not treated in this convention, therefore are subject to US withholding tax.

(aside to xoron) is your Seagate domesticated in northern ireland or in ireland itself?

if the former (belfast is the capital), it's part of the UK & dividends should probably not be subject to NR withholding.

but if the latter (dublin is the capital of Eire) then any irish withholding tax would apply. This seems to be what you are experiencing?

(back to pano) foreign taxation of ADRs held in canadian RRSPs is a highly intricate topic & many people are alas making mistakes. You should pick & choose carefully which of the CMF voices you are going to listen to & believe in. Among others, i would recommend liquidfinance, haroldCrump, Pucki & usually warp, at least warp when he is not complaining. Also Advisor seems to be getting it straight. Of course, there's hubbity pie, she's a dense crumb but occasionally does manage an insight or 2.


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## leslie (May 25, 2009)

leslie said:


> ... if distributions are paid out of the foreign country directly into your RRSP there will be no withholding tax deducted (if there is a treaty in place).


 Notice that my wording would NOT apply to ADRs. There are lots of dual listed foreign stocks traded on US exchanges. You should not assume your particular interest is an ADR.


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## My Own Advisor (Sep 24, 2012)

@Xoron, I was referring to the stocks I listed in my comment only.


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## PuckiTwo (Oct 26, 2011)

leslie said:


> Canada has a long list of treaties which for the most part have terms similar to the US one. So chances are, if distributions are paid out of the foreign country directly into your RRSP there will be no withholding tax deducted. http://www.fin.gc.ca/treaties-conventions/in_force--eng.asp


Leslie, I am not sure if this is correct as it reads. Even if there is a treaty with Canada, because: if the foreign countries withholding tax is, let's say 25%, and their taxation treaty with Canada cuts it down to 15% - then there is still a 10% tax "leftover" which comes out of the investor's pocket. Investors buying foreign stocks other than US should be extremely cautious and learn about the implications


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## humble_pie (Jun 7, 2009)

leslie said:


> Canada has a long list of treaties which for the most part have terms similar to the US one. So chances are, if distributions are paid out of the foreign country directly into your RRSP there will be no withholding tax deducted. http://www.fin.gc.ca/treaties-conventions/in_force--eng.asp





leslie said:


> Notice that my wording would NOT apply to ADRs. There are lots of dual listed foreign stocks traded on US exchanges. You should not assume your particular interest is an ADR.




actually i was responding directly to the OP who asked about stocks traded on the NYSE only, including foreign stocks traded there.

the OP didn't ask about foreign stocks directly traded on overseas stock exchanges, to which the foreign country/canada tax conventions would apply. He only asked about NYSE trading.

with respect to "dual-listed" foreign stocks trading stateside, to the best of my knowledge there are none, other than canadian stocks, in the pure sense of a canadian stock that is perfectly interlisted & bears the same CUSIP number in both canada & the US. 

what look like overseas stocks trading on US exchanges are ADR & ADS packages of foreign stocks, created & managed by the big American depository banks who are the intermediaries between the foreign company itself & the pertinent US exchange where the packaged security trades.

in all of these cases, it's my understanding that the applicable tax treaties are not those between the foreign country & canada. The applicable tax treaties are those between the foreign country & the US.


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## Eclectic12 (Oct 20, 2010)

Xoron said:


> Again, my personal experience is that US listed ADR (American Depository Receipt) stocks, held in an RRSP *DO *have taxes withheld on Dividends.
> 
> And All foreign stocks held in a TFSA have taxes withheld on Dividends.
> 
> YMMV


I would have thought that since the ADR is showing up as a US entity, the withholding tax would be based on the US tax treaty with the source country and then whatever was left would subject to the US - Canada treaty (taxable & TFSA = 15% withholding tax, RRSP = no withholding tax).

However, this article says YMMV even further as it lists an Israeli company that on paper should have a top rate of 20%, a treaty rate of 15% but RBC reports that their Canadian investors are typically paying 9%.

http://www.theglobeandmail.com/glob...-hunters-must-beware-tax-trap/article9840189/


So it would appear that YMMV works in multiple directions.


Cheers


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## leslie (May 25, 2009)

PuckiTwo said:


> Even if there is a treaty with Canada ... if the foreign countries withholding tax is 25%, and their taxation treaty with Canada cuts it down to 15% - then there is still a 10% tax "leftover"


 The part of the tax treaty that I think is common to most, is the treatment of payments into retirement accounts. In the OP's case it is into an RRSP. And most treaties agree to not withhold anything (not 15% or 25%). Again I stipulate this applies to payments 
paid out of the foreign country directly into your RRSP (ie NOT into an American ADR).


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## PuckiTwo (Oct 26, 2011)

leslie said:


> ........ And most treaties agree to not withhold anything (not 15% or 25%). Again I stipulate this applies to payments
> paid out of the foreign country directly into your RRSP (ie NOT into an American ADR).


If I understand your statement above correctly, you are saying that "most countries that have treaties with Canada *do not withhold* ANY withholding tax if the dividends from that respective country is directly paid into your RRSP". 

Unless I misunderstood what you said, I am really concerned about your statement above. 
1. Which countries are you talking about? The only countries that do not charge withholding tax (by the way, well advertised on CMF in numerous threads are Britain and Hongkong). Unless you know of any other country????
2. Can you verify which countries you mean when you say "most treaties agree to not withhold anything?"
3. Can you provide links, etc.?
4. How does another country than the USA with which Canada has a special agreement about the treatment of "withholding in RRSPs" know about the RRSP situation? 
5. In another CMF thread it was just established that not all foreign securities are allowed in Canadian RRSPs and that it maybe better if in doubt one shouldn't buy foreign securities directly from other countries in RRSPs. 

Anyhow, if I misunderstood you, I apologize but I still would like to know where your got your information. Respectfully, P.


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## humble_pie (Jun 7, 2009)

leslie said:


> The part of the tax treaty that I think is common to most, is the treatment of payments into retirement accounts. In the OP's case it is into an RRSP. And most treaties agree to not withhold anything (not 15% or 25%). Again I stipulate this applies to payments paid out of the foreign country directly into your RRSP (ie NOT into an American ADR).



once again may i underline that canadian investors holding foreign stocks in their RRSPs hold these, with almost no exceptions, as ADRs that are traded on US stock exchanges.

the part that is giving leslie so much difficulty is that nearly all of the thousands of foreign stocks that trade on US exchanges trade there as ADRs & ADSs only. These are packages of foreign stocks created & administered by US banks acting as depository banks. They are legally different from the actual common stocks of overseas companies that trade on their native exchanges. 

foreign stocks are *not* dual-listed on US & overseas exchanges as our friend has claimed upthread. With almost no exceptions, they trade stateside as ADRs only.

http://www.sec.gov/answers/adrs.htm

from the document:

_*American Depositary Receipts*

The stocks of most foreign companies that trade in the U.S. markets are traded as American Depositary Receipts (ADRs). U.S. depositary banks issue these stocks. Each ADR represents one or more shares of foreign stock or a fraction of a share. If you own an ADR, you have the right to obtain the foreign stock it represents, but U.S. investors usually find it more convenient to own the ADR._ 


here's the long version of the same story:

http://www.sec.gov/divisions/corpfin/internatl/foreign-private-issuers-overview.shtml


with respect to US-traded ADRs whose underlyings are packages of overseas stocks, it is the foreign country's tax treaty with the US that applies to shareholders, *not* the foreign country's tax treaty with canada.

every foreign country's rate of NR withholding tax will be set forth in its US tax convention. Since there are several sets of intermediaries, including the opaque US ADR structure, the ultimate foreign company headquartered overseas has no idea which of its ADR beneficial owners - who might be scattered all over the planet - are or are not canadian retirement account holders.

fortunately most canadian brokers appear to be doing a good job with the complexity. Less fortunately, the transfer agents are often charging fees for handling overseas NR withholding taxes.


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## Xoron (Jun 22, 2010)

@humble_pie spot on. This is what tripped me up first when I owned ABB (an ADR traded on the US exchanges). Took me a while to figure out why taxes were being withheld on my div payout. 

As for STX, I can't be certain where they are domiciled. But, I know a lot of technology companies have setup in Dublin over the years, so that is my guess.


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