# Tfsa tax adr



## kid5022 (Nov 14, 2010)

got a few questions about tfsa investments in ADR
but first Canadian investments inside TFSA is tax free on div/int/cg
us investments only have to pay 15% withholding tax on div and no tax on int/cg

but what about tax on ADR? such as companies from UK (HSBC/BP) and China/Hong Kong(LFC/CHEUY)? 

I heard it depend on Canada and the other country(not US of A) tax treaty
I heard that it doesnt matter

which means i am lost, any one can point me in the right direction?

my best GUESS is that i received divd from whichever ADR i choose just like an American citizen does, and i pay an extra 15% withholding tax on it. CG/Int i am not tax because its inside a TFSA. Hope i am right, please do let me know if i am wrong


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## OhGreatGuru (May 24, 2009)

See this blog and see if it answers your question.

http://blog.taxresource.ca/tfsa-non-resident-withholding-taxes/


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## humble_pie (Jun 7, 2009)

hello kid if these are US traded ADRs then they are subject to US withholding tax at 15% just like US stocks.

in a tfsa, this 15% will be subtracted from each dividend before it settles in your brokers account. Please note that you will not pay this 15% personally. You will just lose it.

the difference between tfsa & non-registered & rrsp is that the 15% withdrawn amount will be, respectively, 1) lost in tfsa, 2) can be claimed as a foreign tax credit in non-registered, and 3) will not be charged in rrsp, which is exempt as rrsp under the canada-US tax convention. (tax-free accounts are too recent to be included in that convention.)

turning back to US traded ADRs, please note that the tax treaty between the country of origin & the US is the treaty that applies, not any treaty between country of origin & canada. If taxes are withheld by a country of origin when dealing with the ADR manager (which is usually the bank of new york) there is nothing an individual investor can or should do do about it. Investors will never be able to avoid or claim credit for such taxes. IMHO investors should accept this or else not buy the ADR.


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## kid5022 (Nov 14, 2010)

humble_pie said:


> hello kid if these are US traded ADRs then they are subject to US withholding tax at 15% just like US stocks.
> 
> in a tfsa, this 15% will be subtracted from each dividend before it settles in your brokers account. Please note that you will not pay this 15% personally. You will just lose it.
> 
> ...


hey humble pie thanks for answer my tfsa question
you answer by far is the clearest and easiest to understand thank you
look like i better look at the country of origin and US of A treaty

but isnt it still better because you dont have to pay any capital gain tax in Canada if its held in an unregister account compare to tfsa where the cg is not tax in canada?
thanks again


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## liquidfinance (Jan 28, 2011)

From what I understand of it you will pay withholding tax of the country that the shares are held in unless the company has earning in the US. In which case you will pay 15% reduced off the quoted dividend payment. 

Any capital gains you make will be tax free and not subject to any US tax.

If you purchased in an ADR in a UK company with UK only earning then it would appear there would be no witholding tax. This is only because UK companies automatically withhold 10% so the dividend price quoted is what you recieve. As a side note if you hold UK stocks outside a TFSA you should gross up to take into accout the 10% tax.


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## humble_pie (Jun 7, 2009)

hmmmn liquidfinance raises some fascinating points.

first the easy stuff. Then the difficult stuff.

easy: we all agree that there is never any withholding tax imposed upon capital gains by the US of A, neither upon a US stock nor an ADR nor an etf nor any other kind of exchange-traded vehicle.

and we'll all agree that, for an investmnt held in a tfsa, there will never be any capital gains tax. In fact there will never be any kind of tax, period.

now for the difficult. This thread began as discussion of withholding tax to be imposed upon dividends paid by ADRs. I took this to mean US adrs traded on US exchanges. The majority of these were created by, and are managed by, the bank of new york mellon.

i contacted td waterhouse, a large broker that i know is strictly & diligently compliant with all regulations. I asked the representative if he had any internal documents or reference tools regarding withholding tax on ADRS that he could utilize to answer a client's questions about withholding tax on ADRs & possible exemptions or adjustments to such tax..

the representative had no experience with the question but he did look for such a resource tool. He quickly returned to say he had found an internal document that he was not permitted to read verbatim, but he could tell me its essence (this is a proper way for tdw to act btw.)

paraphrasing his internal resource tool, the represntative said that tdw clients who are dual citizens and who hold ADRS consisting of stock or stocks whose head office is located in their 2nd country of citizenship, and "who feel that they have a case," may ask a tdw representative to contact the back office, which in turn will send out a form that such client can use that may help to reduce or adjust the withholding tax.

he had no further details. I'm not pressing the issue because i'm not involved (not a dual citizen.) But ottomh i feel that this whole issue would be of interest mostly to very large holders of foreign ADRS who are dual citizens, or else to small holders who are exempt from canadian income tax, such as foreign graduate students or some landed immigrants.

dual citizens would have to actually obtain this form & study it in order to see if it would benefit themselves. Please keep in mind that for non-registered accounts, the canadian taxman is going to want all ADR dividends to be included in income. I am assuming that any exemption a dual citizen may gain applies only to adjustment of the withholding tax, and that on the dividend itself such a citizen remains taxable in canada. (Notice, though, that for the dual citizen who can jump through all the hoops, filling out such a form & pursuing its claim *might* lead to elimination of withholding tax on ADRS held inside a tfsa ...)

lastly, i would like to note that if td waterhouse is providing this measure of help, it's because of their excellent & high compliance standards. This means that every other discount broker is required to do the same. Requesting at other brokers may be more difficult, however. One might even find refusal or strong resistance from some other brokers.

thank you so much for your comments, liquidfinance.


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## Toronto.gal (Jan 8, 2010)

liquidfinance said:


> If you purchased in an ADR in a UK company with UK only earning then it would appear there would be no witholding tax. This is only because UK companies automatically withhold 10% so the dividend price quoted is what you recieve.


I own Australian shares & pay no withholding taxes. Based on below explanation from the company's website, my understanding is that the dividends paid to shareholders are franked, ie: corporate taxes are paid prior to dividend distribution. If dividends were not franked, [I assumed] that I would see the 15% withholding tax in my account, which I don't, but after what you said, I'm now thinking the dividend I get may be unfranked after all; not that I much care because I would own these shares just the same and 15% is not high comparing to other countries. 

*"Non-Australian shareholders

The effect of the dividend imputation system on non-resident shareholders is that, to the extent that the dividend is franked, no Australian tax will be payable and there is an exemption from dividend withholding tax. A withholding tax is normally levied at the rate of 15 per cent when unfranked dividends are paid to residents of countries with which Australia has a tax treaty. A rate of 30 per cent applies to countries where there is no tax treaty."*

Though you only mentioned UK, I believe the taxation works the same in Australia; I have British shares too, except I receive no dividends for them, but from what you have said, the withholding tax is only 10%?.

*Edit:* I just checked the last div. payment report & based on what was noted below, you were right, there is an invisible withholding tax. I should have understood that franked dividends applied only to the Aussies as the double taxation elimination applies to residents of the country & not foreigners. Live & learn!

(Aus)
48.649438¢*** 
(US) 45¢ 

*** Fully Franked ; ^ Fully Unfranked


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## humble_pie (Jun 7, 2009)

the most important thing about all this is what t_gal said:

_" ... not that I much care because I would own these shares just the same and 15% is not high comparing to other countries."
_
ie we should buy ADRs on their merits & only worry if we are dual citizens who are rich investors w huge holdings ...


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## Argonaut (Dec 7, 2010)

Hmm, I'm a dual citizen with US and do not pay withholding tax on dividends. Putting US stocks in the TFSA is something I'd think about, but not likely do. I would feel like I was wasting contribution room on the exchange rate. Of course there is the gambit, but I have only seen this done seamlessly in an RRSP. I wouldn't want to be a trailblazer when it comes to something delicate like TFSA contribution room.


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