# Taxes on foreign dividends in RRSPs



## rgarand (Sep 19, 2010)

I read something yesterday about taxes on foreign dividends (written for the US) and I'm wondering if that applies here - I hold the TD e-Series US, CDN, and EAFE indexes in RRSP and TFSA accounts and I've noticed that the yearly distribution for the canadian one seems far larger than the others. Is this the cause? Are the taxes lost in a sheltered account?


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## kcowan (Jul 1, 2010)

The Canada/US tax treaty protects US holdings. IOW you get credit in your RRSP for the 15% withholding. I don't know about the Europe holdings.


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## HaroldCrump (Jun 10, 2009)

rgarand said:


> I've noticed that the yearly distribution for the canadian one seems far larger than the others.


It could be that the companies comprising in the other funds may not be paying out as many dividends as the Canadian ones.
I'd guess that the Canadian index fund comprises mainly of the large Canadian banks, utility companies, etc. most of which are good dividend payers in the range of 3 - 4% and above.
But the US and European ones may not pay out that much dividend, and thus the index fund doesn't distribute much.


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## DenisD (Apr 19, 2009)

rgarand said:


> I read something yesterday about taxes on foreign dividends (written for the US) and I'm wondering if that applies here - I hold the TD e-Series US, CDN, and EAFE indexes in RRSP and TFSA accounts and I've noticed that the yearly distribution for the canadian one seems far larger than the others. Is this the cause? Are the taxes lost in a sheltered account?


Foreign taxes on dividends paid by foreign companies (US or other) held by TD eSeries funds or any other Canadian mutual funds or ETFs are lost in a sheltered account.

There are no foreign taxes on US-based ETFs held in a RSP if the ETF holds US companies.


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## Jungle (Feb 17, 2010)

Interesting. Anyone know why that is?


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## the-royal-mail (Dec 11, 2009)

Thanks for starting this thread. I was surprised when I read that yesterday as well. I had thought that all growth within RRSPs and TFSAs was tax free and that you only pay tax on RRSP $ when you withdraw the money. I never realized some components of the growth were subject to extra tax??


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## cardhu (May 26, 2009)

rgarand said:


> I hold the TD e-Series US, CDN, and EAFE indexes in RRSP and TFSA accounts and I've noticed that the yearly distribution for the canadian one seems far larger than the others. Is this the cause? Are the taxes lost in a sheltered account?


1.	there is no reason to expect that the distributions should be equal to begin with, even in the absence of tax effects ... therefore, you can’t blame taxes for whatever variations you might observe ... they are an influence, sure, but not the cause ... for the US index in particular, the distribution amounts would likely have been influenced more by dividend cuts among the companies representing the index ... dividend cuts were widespread in the US. 

2.	EAFE fund had a larger distribution than the CDN fund in both 2009 and 2007, and was only slightly below CDN in 2008 ... you mustn’t look at the distribution dollar amounts in a vacuum ... you also have to take the unit value into consideration ... a 4-cent distribution on a $10 fund unit is far larger than a 5-cent distribution on a $20 fund unit. 

Yes, when you hold CDN-domiciled mutual funds, the foreign taxes are lost in both a TFSA and an RRSP. 



jungle said:


> Anyone know why that is?


Under the CDA/US tax treaty, US-sourced dividends paid into an RRSP are exempt from US withholding tax. However, mutual funds are not RRSPs, and therefore do not qualify for the exemption.


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## Jungle (Feb 17, 2010)

Thank you Cardu. Would dividends from VEA and VWO be distributed in full in an RRSP?


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## DenisD (Apr 19, 2009)

Jungle said:


> Would dividends from VEA and VWO be distributed in full in an RRSP?


The dividends from the ETFs would be distributed in full in a RSP, provided your RSP is set up correctly. I forget the name of the document you have to fill out. That is, there would be no 15% withholding tax shown on your statement.

You would lose the foreign tax credit from foreign taxes on the companies within the ETFs. Tax wise, holding VEA or VWO in a RSP is the same as holding a Canadian domiciled EAFE or emerging markets index mutual fund in a RSP. That's assuming there are no Canadian or American companies in the funds and the foreign taxes are the same for Canadians and Americans.


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## Eclectic12 (Oct 20, 2010)

the-royal-mail said:


> Thanks for starting this thread. I was surprised when I read that yesterday as well. I had thought that all growth within RRSPs and TFSAs was tax free and that you only pay tax on RRSP $ when you withdraw the money. I never realized some components of the growth were subject to extra tax??


In general, part of the problem is that the US - Canada Tax treaty does not recognise the TFSA as an pension trust like it does the RRSP. Thus according to several sources, US company dividends in a TFSA will be subject to the withholding tax where in the RRSP it shouldn't. [Some sources I'm seeing are indicating that in some cases, with a US tax form filed, the withholding tax is taken before the dividend hits Canada].

http://tinatehranchian.wordpress.com/2010/07/05/do-not-hold-dividend-paying-u-s-stocks-in-your-tfsa/

Canada treats the TFSA as tax free so the foreign tax credit can't be used. The end result is that the withholding tax is gone with no way to recover it.
In a non-registered account, the foreign tax credit would apply.

http://www.financialpost.com/personal-finance/tfsa/Juggling+TFSA+with+your+RRSP/1261786/story.html

Then too, apparently some brokerages haven't registered the proper paperwork with the US gov't and in a non-registered account, a 30% withholding tax is applied where the tax treaty says only 15% should be applied. The one note said that Canada Revenue Agency has said that if you've paid over 15% - too bad as the foreign tax credit will only get you back 15%.

So - there seem to be lots of places where US dividends aren't being taxed properly. 

Now on top of all of this, the bit about TD fund ... *sigh*


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## PMREdmonton (Apr 6, 2009)

Just thought I'd reopen this thread a bit.

So for RRSPs we know that for dividend income from US companies there is no withholding taxes for Canadians.

I have heard that the same is true for the UK.

I have also heard there is no exception for German and Swiss companies.

Does anybody know how it works for other countries? I'm especially curious about Brazil, France, Spain, Netherlands, Japan and Australia.

This website lists Canadian withholding taxes for non-registered accounts but I can't find a list of countries with whom we have a tax treaty for pension accounts:

www.ritceyteam.com/pdf/withholding_tax.pdf


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