Bias for action. Gets things done. Go-getter. Traits companies big and small look for. And for good reason, you're being hired to do things! However, action is a secondary step that often overshadows the primary step, direction. Clear direction is the foundation that enables our actions to takeoff. Without it, we're stuck in the mud. Striving for clarity is an underrated skill. Having the courage to ask ( seemingly ) obvious questions, and to check in, making sure we're all on the same page. "O bvious " questions are a low risk, high reward way to add value. At worst, you'll add confidence to our actions. At best, you discover a misalignment that saves us from a dead-end. The more people, the more clear we need to be. The bigger the initiative, the bigger the risk of reaching the finish line, only to realize expectations were off. Success is always uncertain. But we can be certain about what we want and what everyone's job is. Things that can be clea
It's important to diversify globally. This is especially true for us up north. Canada only has a handful of public companies and these companies span very few sectors (finance and natural resources).
Investing overseas does comes a cost. Taxes. Today we discuss foreign withholding tax and how we can properly manage it.
What is Foreign Withholding Tax?
These are taxes for dividends paid by foreign companies to Canadians.The tax is withheld from your dividends behind the scenes so are often overlooked. A major oversight as they can put a heavy drag on performance if not managed.
How Much Are These Taxes?
The amount varies by country, typically ranging between 15% and 25%.Are These Taxes Recoverable?
If the tax occurs in your non-registered account then you'll receive a tax credit that you can apply against your income.For dividends paid to your registered accounts (TFSA, RRSP, etc.), the tax is unrecoverable.
How Can I Reduce My Taxes?
Tax consequences come down to what you're holding and where. For ETF investors there are some guidelines to follow.RRSP: US-Listed ETFs that hold US stocks
Example: ITOT
Canada has a treaty with the US that eliminates foreign withholding tax in the RRSP. No similar treaty exist with any other country.
You'll need to convert your Loonies to Dollars to buy the US-listed ETFs. This is costly, unless you use Norbert's Gambit.
TFSA and Non-Registered: Canadian-Listed ETFs holding foreign securities directly
Example: XEF
Our tax treaty with the US only applies to the RRSP so there's no benefit in converting currency and buying in USD. You're better off keeping it simple buying Canadian-listed ETFs.
But be careful! You'll want to buy the right ones. Canadian-listed ETFs can hold foreign securities directly or can hold a US-listed ETF that holds foreign securities.
You'll want to avoid the latter as they create an additional layer of tax. When dividends are paid, the non-US foreign country withholds taxes before paying the US, and then the US withholds taxes before paying you.
A Canadian-Listed ETF holding foreign securities directly only has taxes withheld by the foreign country. No US middleman, no second layer of tax.
Comments
Post a Comment