# Vanguard Canada ETFs & US withholding tax question



## mrPPincer (Nov 21, 2011)

Here's my question sent to Vanguard Canada:
While I'm awaiting their response does anyone have knowledge or speculation on the subject?
__________

Hi, I'm a holder of some of your Canada-domiciled ETFs as well as some US ones.
A representative from my brokerage tells me that the CDN-domiciled ones are not subject to the 15% dividend withholding tax (even outside RRSP)

My question:
Because the canadian etf's are essentially holding the US-domiciled ones, are they subject to US withholding tax anywhere along the way?
For example, does VEE (Vanguard MSCI Emerging Markets Index ETF) experience any US withholding tax at some point when the US-domiciled shares of VWO become shares of VEE at Vanguard Canada?

Thanks in advance for any response.
__________


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## mrPPincer (Nov 21, 2011)

Ok, I've received a very quick and courtious response from Vanguard to my question and my followup question.
I've tried to delete this thread but I don't sem to have the option so here's the answer to my question for anyone else wondering.

The funds that are holders of their US-domiciled counterparts (ie VUS, VEE and VEF) receive and pass on the dividends less the 15% dividend tax that the US etfs must pay.
My brokerage will then provide a tax slip at year end detailing the dividends received by me and any tax withheld at the source.


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## andrewf (Mar 1, 2010)

You lose that credit if the fund is held in a registered account. Thus, it is more advantageous to hold the US fund in an RRSP than the Canada-domiciled fund.

There's also the matter of currency hedging. I would like the option of a non-hedged Canadian domiciled US or international equity ETF. The only ETF I am aware of in Canada is the former-Claymore, now iShares Fundamental US Equity ETF, which is offered in a non-hedged flavour.


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## Xoron (Jun 22, 2010)

mrPPincer said:


> The funds that are holders of their US-domiciled counterparts (ie VUS, VEE and VEF) receive and pass on the dividends less the 15% dividend tax that the US etfs must pay.


Hold on there, that seems a little offside to me. If I hold a US corp (IBM for arguments sake) in my RRSP, it isn't subject to the witholding tax on the dividend. But if I hold a VUS in my RRSP, I lose 15% witholding tax on the dividend flow through from the dividend? 

What's the point of holding VUS then (other than the currency hedge which I do not want anyway)? Wouldn't it make more sense to hold the US version of the of the ETF in your RRSP, and not give up the %15 witholding tax? Or did I miss something?


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## andrewf (Mar 1, 2010)

^ You are exactly right.

The advantages I can think of for VUS:
-trades in CAD and so can avoid brokerage exchange rates (if you have an expensive broker)
-If you are high net worth, owning significant US assets (such as VTI but not VUS) may make you subject to US estate taxes on your death.


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## CanadianCapitalist (Mar 31, 2009)

Also, if you own VUS in a taxable account, it doesn't count as foreign property according to CRA. But VTI counts as foreign property and an investor may have to file Form T1135. This is a minor paperwork requirement but something to keep in mind because not filing it could be an expensive proposition.


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## rassmy (May 7, 2010)

I hold VUS in my RRSP account, there is no 15% withholding tax on the dividend. Last distribution was end of March, I received the full as declared dividend.


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## andrewf (Mar 1, 2010)

VUS paid the withholding tax before they sent you the dividend. VUS is a Canadian entity, and not exempt from withholding tax (dividends are subject to withholding before VUS gets them).


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## rassmy (May 7, 2010)

Ok guys, I think it is better off investing in XSP and XIN instead of VUS and VEF, although you pay less management fees on Vanguard etf, however returns and dividend is much higher on XSP andXIN. Below is my math based on the closing price as of Friday April 20,2012:

10K invested in 
xin (yearly fee 50$ , yearly dividend 477$) 
xsp (yearly fee 25$ , yearly dividend 279$) 

vus (yearly fee 15$ , yearly dividend 137$) 
vef (yearly fee 49$ , yearly dividend 232$)


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## Belguy (May 24, 2010)

I'll pose the question in this thread rather than start a new one.

What Vanguard ETF do you currently feel would make the best core U.S. equity holding in a registered account, VTI, VIG, or VUS or some other ETF?

https://personal.vanguard.com/us/FundsSnapshot?FundId=0970&FundIntExt=INT

https://personal.vanguard.com/us/funds/snapshot?FundId=0920&FundIntExt=INT

https://www.vanguardcanada.ca/documents/literature/F9321EN.pdf


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## andrewf (Mar 1, 2010)

I like VTI.


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## Belguy (May 24, 2010)

Are your foreign ETF's hedged or non-hedged?


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