# Vanguard VXC in RRSP, question regarding withholding tax



## jollybear (Jun 28, 2015)

I`ve bought the Vanguard VXC ETF and keep it in my RRSP account. I purchased it on the TSX in CND dollars, just want to make sure that it will still qualify for no US withholding tax on the dividend portion of US stocks. I browsed Vanguard`s website briefly but could not find anything related to the subject. Thanks


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## My Own Advisor (Sep 24, 2012)

Because VXC holds U.S.-listed ETFs, there will be withholding tax, U.S. and international. 

The best way to avoid withholding tax in your RRSP is to own U.S.-listed ETFs in your USD $$ side.


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## Eclectic12 (Oct 20, 2010)

If VXC is domiciled in Canada ...



> In a taxable account, US or international withholding taxes apply, but are recoverable.
> In an RRSP or TFSA, US or international withholding taxes apply and are not recoverable.


http://canadiancouchpotato.com/2012/09/17/foreign-withholding-tax-explained/


Cheers


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## jollybear (Jun 28, 2015)

Thanks for the link Eclectic12

"However, if you hold these funds in an RRSP, you forfeit the exemption you would otherwise receive on foreign withholding taxes. That’s because the fund itself pays the withholding taxes: you don’t pay it directly. And because you’re investing in an RRSP, the fund won’t issue a T3 slip that would allow you to recover it."

"When you hold these in a taxable account, you can recover taxes withheld by the US-listed ETF, but those withheld by non-US countries are not recoverable. In an RRSP, you get two levels of withholding tax and neither is recoverable, which makes this structure particularly tax-inefficient for international equities."

So the bottom line is that individual US stocks held in an RRSP benefit from no withholding tax, where as this ETF`s does not. I`m sure there are many variables to consider if it makes sense to convert my CND VXC to USD VXC for the tax savings. Weak Canadian dollar, the premium banks charge to convert CND to USD etc etc


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## GreatLaker (Mar 23, 2014)

For International exposure in RRSP I use XEF. It holds foreign stocks directly, so it still gets hit with the level one FWT (applied by foreign country), but the level 2 FWT (applied by US Govt) that applies to Vanguard FTSE Developed ex North America Index ETF (VDU) is not applicable to XEF. So XEF is more tax efficient than VDU. BMO ZEA also holds foreign securities directly.

I hope iShares eventually takes the same approach with XEC, but not holding my breath.

Also holding VTI in a RRSP benefits from no withholding tax, but as you say you then need to deal with the cost of currency conversion, or the complexity of avoiding it (Norbert's Gambit).

This blog post by Justin Bender concludes that XAW is slightly lower total cost than VXC.
http://www.canadianportfoliomanagerblog.com/war-of-the-worlds-ex-canada/


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## jollybear (Jun 28, 2015)

Excellent info Greatlaker......thanks for the link!


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## Robillard (Apr 11, 2009)

I thought that one needed to hold US stocks directly (not through a fund) in an RRSP in order to remove or recover the US withholding tax on dividend distributions. I don't think it matters whether the RRSP account is denominated in US dollars or Canadian dollars. I'm not sure about this though.


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