Read this – if you’re investing in U.S. stocks or ETFs

Read this – if you’re investing in U.S. stocks or ETFs

I’m not a perfect investor but there are some very wise things I’ve learned over the years, when it comes to managing my portfolio, and you should know these things as well.

Read this – if you’re investing in U.S. stocks or ETFs!

  1. Keep U.S. dividend paying stocks and U.S.-listed ETFs in your RRSP

Canadian dividend-paying stocks receive favourable tax treatment from our government; they are eligible for the Canadian dividend tax credit if held in taxable accounts (outside TFSA and RRSP accounts). 

U.S-dividend paying stocks and ETFs do not receive any favourable tax treatment from our Canadian government so by keeping those stocks and ETFs inside an RRSP I avoid paying any withholding taxes. Let me summarize those tax implications:

  • U.S. stocks and ETFs held within RRSP or LIRA or RRIF = no withholding taxes.
  • U.S. stocks and ETFs held within RESP or TFSA = pay 15% withholding taxes.
  • U.S. stocks and ETFs held in non-registered accounts = pay 15% withholding taxes (which is recoverable).

U.S. stocks held inside a TFSA are not eligible for the foreign income tax credit either.

My approach: I only hold U.S. listed stocks and ETFs in my RRSP.  See point #2.

  1. Delay putting U.S. dividend paying stocks and U.S. ETFs in your TFSA

You have read above that U.S. stocks and ETFs held in registered accounts but accounts not designated as “retirement accounts” in the eyes of the U.S.-Canada Tax Treaty are subject to withholding taxes.  


However consider this: delay putting your U.S. stocks or ETFs inside your U.S. dollar TFSA. If you find out your tax rate in retirement is greater than 15%, then I believe there is a tax advantage to be had keeping U.S. stocks or U.S. ETFs inside the TFSA.

My approach: I will consider this approach myself, after my RRSP room is maxed out, with mostly U.S. assets; I will consider using the TFSA for U.S. equities in the decades ahead. For now, I will only own Canadian equities inside the TFSA. 

  1. Consider the implications of owning Canadian listed funds that hold U.S. stocks and U.S. ETFs

Instead of worrying about currency exchange rates to buy U.S. stocks or ETFs (from your Canadian contributions), you can own Canadian listed funds that hold U.S. stocks or ETFs.  In doing so consider the following:

For a Canadian ETF (example VFV) that holds a U.S. ETF (VOO, a S&P 500 Index Fund), VFV in a taxable account will have withholding taxes applied (15%) but they are recoverable when investors file their tax returns.  In an RRSP or TFSA withholding taxes apply and you cannot claim a credit for this.

So, if you don’t have much to invest yet (say $50,000 or even up to $100,000) then it might be best to invest in a Canadian ETF (that holds U.S. stocks and simply pay the higher MER accordingly). You’ll avoid currency exchange rate headaches from Canadian to U.S. assets while getting some much needed diversification for your portfolio.

On the contrary, maybe you have a bundle to invest – so it might be best to invest in a Canadian ETF that holds U.S. stocks to avoid U.S. estate taxes. U.S. estate taxes is a complicated beast I won’t get into today because of the complexities involved and more importantly I’m not fully versed on this (yet) – so if you’re looking to protect that huge estate, and keep the IRS away from your wallet, go with Canadian-listed funds to hold your U.S. assets.

Is it worth owning U.S. stocks and ETFs at all?



There are some great advantages in owning some U.S.-listed ETFs over those Canadian-listed ETFs.

  1. They are often cheaper, especially for international and emerging markets. (Meaning, it’s not unusual for the Canadian versions to have management fees that are twice as high as their U.S. counterparts.)
  2. They are more tax-efficient. See above. U.S. and international stocks are subject to a withholding tax on dividends. If you hold U.S. or international stocks using a Canadian-listed ETF, these withholding taxes are lost in an RRSP. However, U.S. securities held in an RRSP are exempt from withholding taxes, thanks to a tax treaty between the two countries.

Read this – if you’re investing in U.S. stocks or ETFs summary

Bottom line: if you use U.S.-listed ETFs for your foreign equities in an RRSP you may be able to reduce or eliminate this tax drag.

For the most part, when in doubt, consider sticking to using Canadian-listed ETFs. This is probably always the case for TFSAs, RESPs and taxable accounts.

There are still advantages to using U.S.-listed funds in your RRSP, but only if you are able to convert your currency to U.S. dollars at a low rate and avoid trading stocks or ETFs in the process. 


My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.

40 Responses to "Read this – if you’re investing in U.S. stocks or ETFs"

  1. Hi there!

    I currently have about $30,000 invested in US stocks (Disney, P&G, Walmart) that I purchased over 5 years ago and they sit in a non-registered TD Direct Investing account. Should I be moving these investments into my CDN RRSP then? Is it even possible? Thanks in advance.

  2. So to my understanding, if i day trade US ETF’s through my Canadian Corporation’s non-registered account, i would have to pay withholding tax which would be recoverable and my profits will be considered capital gains (or foreign business income?). Would appreciate the clarification please and thankyou.

      1. Thank you so much mark for your reply and the very helpful article! i do have a much clearer picture now but definitely will be arranging a visit to my tax accountant to be safe! Cheers!

  3. I have 100k to invest in RRSP’s and 80k in TFSA’s (accounting for my spouse as well). I’m looking at a mixture of 25%VAB/25%VCN/50%VXC. However, to be tax efficient I’m looking at VTI/VXUS to replace VXC in the RRSP. At the current CDN to USD currency exchange rate does it make sense to buy these US ETF’s (saving money with lower MERs and FWTs) when I’m getting gouged in currency conversion (i.e. 100k CAN becomes 76500 USD at today’s rate- I would use Norbert Gambit to save on currency exchange fee). Am I still better in the long run having VTI/VXUS than VXC in the RRSP despite losing money on currency exchange?

    Thanks for any advice.

    1. I can’t offer any specific advice for a number of reasons Ryan, but I can offer a take on what I do.

      I own VTI and VXUS for the rock bottom fees and I Gambit maybe once per year to save on currency exchange. I can’t predict the markets, the currency exchange, etc. but I can own the lowest cost products available outside my dividend stocks, and that’s what I do 🙂

    2. Ryan, the currency exchange rate is irrevelant in this exact situation. If you Norbert-Gambit and buy VTI-VXUS and the CAD rise compared to USD, VXC will perform poorly anyway because it’s un-edged.

      Depending of your situation, a simlpe way to go would be like: 1 TFSA 100% VAB, 1 TFSA 100% VCN, 1 RRSP 100% VTI and 1 RRSP 100% VXUS. 4 holdings/4 accounts !!

      If your TFSA are not exactly the same size (?) I would use the “smallest” for VAB and the other one for VCN. As for the RRSPs, if one is “bigger” then it would hold VTI and the other one VXUS. At the end, you could get something like: 20%VAB, 25% VCN, 35% VTI and 20% VXUS but, who care?

      Another way to go if you do not want to manage everything as a single big portfolio would be to buy VXC in each of your RRSPs (or Norbert-Gambit + buy VT) then buy VCN for about 25% in each TFSAs + VAB with the remaining cash (+/-20%)

      Dont bother with the exchange rates, it can goes up or down. Last year, the bigest reason my returns were in the 8-9% range was the falling loonie (probably 6% out of it).

      Hope this help!

      1. Good call on the VTI and VXUS inside the RRSP. Personally, I’m a fan of these products but really, between VXC and other, much more costly funds, you are starting to split hairs 🙂

        All this to say, these are good investing problems to have Ryan whereby you understanding this stuff.

  4. Question. (Perhaps this is obvious?) while you are talking about US stock/ETFs specifically does the same taxation principle apply to any international stock/ETFs?

    Thanks! A very helpful post.

    1. Hey Sarah,

      Thanks for the email. Yes, the blog focuses on U.S. stocks and ETFs in particular. They are other tax considerations for other international stocks (i.e., those outside the U.S.). Not easy to wrap your head around but I hope my post helped!

  5. All of our US listed ETFs (US and internationals) are actually into RRSPs. TFSA and RESP hold canadian stocks and the sum of all that meet our target asset allocation (30% canadian stock, 45% US and 25% international). I manage all of our accounts as a BIG portfolio and try to get the least number of holdings to keep it simple to manage (8 holdings within 5 accounts). I also want to get low fees and stay tax efficient. Soon, I will have to much canadian exposure and have to decide if we should buy something like VXC into TFSA or begin to buy bonds (VSB or VAB) when we hit 35% for canadian stocks.

    1. Same, all of our U.S. ETFs are inside our RRSPs. TFSAs are Canadian only accounts.

      We are the same Le Barbu, we manage all accounts as one big portfolio. 8 holdings within 5 accounts is impressive. You must be an indexer! 🙂

      I have also considered buying VXC or VUN in my RRSP as we become overweight in CDN stocks. I might do that later this year.

      Thanks for the comment!

      1. Mark, you mean “consider buying VXC or VUN in TFSA”?

        Most of our holdings are ZCN, VTI, VBR and VXUS and sometime I use RBF556 and TDB217(USD) to reduce transaction fees. I usualy trade 5k$ or more and make 5 or 6 trades/year including a Norbert-Gambit

        1. Well, my TFSA is maxed out but yes, sorry, I meant VUN inside TFSA. I prefer to hold only VTI and VXUS in my RRSP as ETFs – I think those products make sense there.

          You are correct VUN is a good home inside a TFSA but the foreign tax credit inside a TFSA cannot be recovered.

          I need to wait until I have, like you, at least $5k to gambit.

          1. Hey I am still somewhat new to all of this so I really enjoyed the post! I was curious if you could explain a bit more why VXC is better in a TFSA than RRSP. Are VTI and VXUS better options than VXC in RRSP? If so, how come?
            Thanks so much!

            1. I recall VXC gets exposure from a few U.S.-listed ETFs. So, diversification is great but you’ll pay for it since Canadian ETFs that hold U.S. assets will be charged withholding taxes inside an RRSP or TFSA. That probably doubles the cost of owing the ETF. I say TFSA since I personally reserve the RRSP for U.S. listed assets like VTI and VXUS.

              There are no withholding taxes for distributions paid from VTI or VXUS, or any U.S. listed ETF inside your RRSP.

              To be fairly tax efficient I think it makes sense to use your RRSP as an “international” account (i.e., owning U.S. listed ETFs that invest in the U.S. and internationally) and use your TFSA for mostly Canadian content (i.e., own Canadian ETFs or stocks that invest in Canadian content). That said, VXC is a great product and to be honest, don’t let the tax consequences sway you too much not owning it in any registered account. There are certainly far worse investing mistakes than owning any low-cost ETF like many of Vanguard’s products.

              Happy investing.

    2. Le Barbu, our allocation and placement of holdings between accounts is similar. Our equity target allocation is US (37.5%), Canada (37.5%) and international stock ETFs (25%). Our RRSPs are 100% US holdings; our TFSAs and RESPs include only Cdn holdings.

      We have relatively large non-registered accounts as well–these include a mix of Cdn dividend payers (taking advantage of the tax credit), a US tech ETF (yielding <1%), an EAFE ETF (yielding 2.5%) and an EM ETF (also yielding 2.5%).

      A portfolio allocation "discussion" we continue to have with our non-registered accounts, given we are in a relatively high tax bracket: do the potential diversification benefits of holding US, EAFE and EM equity ETFs (which pay foreign dividends often subject to withholding tax, and which are fully-taxed as income in non-registered accounts) offset the more tax-efficient returns of holding just Canadian dividend payers (but with the concentration risk and potential long-term underperformance of having a much greater overall exposure to Canada)?

      As an illustration, if we chose to ONLY hold Canadian stocks in our non-registered accounts, our overall US allocation would fall to 25% (from 37.5%), our international would fall to 2.5% (from 25%), and our Canadian exposure would almost double to over 70%. We'd likely pick up some net after-tax return (perhaps 1-2% per year on this reallocated portion), but our overall diversification would fall and we'd be very heavily invested in the domestic market.

      If anyone has thoughts, or experience with type of situation, happy to hear them

  6. Good post Mark. Taxes are secondary to your actual investing decisions but also a very important part of how everything is structured.

    I have all US and international equity investments in my RRSP except a small US low dividend paying ETF in a registered account, which I had been slowly crystallizing through capital gains. I will probably keep what I have for years now though. The tax consequences are minor.

    1. Good point about crystallizing gains over time, seems like a smart thing to do. I recall another savvy investor Michael James is/was? doing the same thing for his U.S. holdings.

      Thanks for the feedback.

    1. Well, good question and I see it this way:

      Dividends from U.S. stocks are fully taxable so you generally want to shelter those. RRSP works then. If you hold U.S. stocks in a non-registered, taxable account, there are U.S. withholding taxes that apply to any dividends earned. The default withholding tax on your U.S. dividends is 30%.
      CRA will only allow you to claim half of this withholding tax on your tax return, so 15%.

      If there are no dividends paid, then you only have capital gains to worry about. The challenge is in a taxable account, any gains crystalized over $200 is subject to tax reporting; any foreign-currency gains or losses in excess of $200 are reportable to CRA. Also, Canadians owning U.S. stocks in non-registered accounts with a cost of >$100,000 need to disclose that for tax purposes via form T1135.

      I just think there are mess of tax complications with U.S. stocks in a taxable account so I don’t do that. I know of other investors though who feel differently because capital gains are a very low form of taxation and they have no short-term intention of trading them, which means they don’t intend to crystalize their gains or losses.

      Many investment decisions have tax complications but in the end the tax tail shouldn’t wag the investment plan/dog 🙂

  7. Thank you Mark. I found these links over at the Canadian Couch Potato. Interesting links to the subject.
    Thanks again.

    “(…) VFV is likely to be a better choice in a taxable account or TFSA. In an RRSP, VOO is preferable but only if you are able to convert Canadian to US dollars at a reasonable cost”:

    1. Yes, those articles are great. I forgot about those!

      I think VUN makes great sense inside the TFSA but I prefer VTI inside the RRSP. I think both ETFs are no-brainers for a long-term portfolio, pick one or both and add to them over the years for decades to come.

        1. I think both ETFs are costing about 0.05% MER (which is peanuts) although I could be wrong on that. I like VTI because I get access to 3,700 stocks vs. 500 or 505? stocks in VOO for the same price.

          I’m learning it’s very difficult to earn market returns with individual stock picking, so VTI with some huge diversification is likely my choice but really, both are excellent indexed products.

          Thanks for your questions Monsieur!

  8. Nice post MOA, very interesting. I was sort weighing in which Vanguard USA ETF’s would be good for my RRSP.
    Do I go VFV or VOO (S&P 500). Is it worth it to buy a CAN-Hedged ETF or slowly building a US ETF in my RRSP? You seem to think it depends of the amount one would invest. Can you elaborate? Thanks again!

    1. I’m slowly using/transitioning my RRSP for U.S. assets, less CDN assets. This transition will likely take a few more years. A CDN-Hedged ETF is still a good choice for U.S. assets but based on my reading, hedged products cost more and hence less returns for you. Also, you don’t get to participate in currency rises and falls over time with hedged products. Participating in different currencies – I believe this can actually be a benefit to your portfolio – a recent example is the fall of the CDN dollar vs. the U.S. dollar.

      That said, with a small portfolio though who are typically folks just learning to invest, I’m thinking hedged products might be better as folks learn the ropes. I hope that makes sense?

  9. Good tips. I only have my US holdings in my RRSP except for VFV in our RESP (and it performs quite well). Isn’t the withholding tax only on a stock that pays dividend? For example, lets say you want to hold Tesla which doesn’t pay dividends. The TFSA should not be much different in terms of taxes until you dispose of it and pay Capital Gains. Is the capital gains subject to the withholding tax?

    1. Correct, withholding tax applies to income and foreign income. If no income, interest, etc. from U.S. stocks or ETFs (including inside TFSA), then capital gains is all there is. Foreign withholding taxes do not apply to capital gains, that’s my understanding!


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