What kind of investment accounts in Canada are tax-efficient and allow holding U.S. stocks (Amazon, Google, etc.)?

I have maxed out my TFSA, and would prefer not to lock money in retirement-inclined and penalty-to-take-out accounts like RRSP.

  • Are you never intending to use RRSPs, or are you just wanting to wait until you are ready to invest for retirement? – DJClayworth Oct 15 '19 at 2:47
  • I don't want to lock up money in a commitments such as RRSP for now, which penalizes upon withdrawal for other needs. I would like to manage money myself and that my money is available to flow for other purpose whenever I need it. – Kenny Oct 15 '19 at 14:42
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    Remember, Investing in RRSP reduces the taxes you owe. – Viv Oct 15 '19 at 14:47
  • But yet even more penalized when I take them out ? ratehub.ca/investing/rrsp-withdrawal-rules Does it mean if I put 30k in it, gain 1500 and withdraw, I am taxed 30% on the entire 31500 (taxed applied even on the original 30k saving), leaving me appx. 31500*0.7=22050. Whereas for non-registered accounts, I am only taxed on 1500 capital gain, leaving me appx. 30k+1500- small tax on 1500 = 31k+ ? In which I even lose 9k by putting in RRSP !? – Kenny Oct 15 '19 at 18:41
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    Say your annual income is 100k, if you put 10K in RRSP, you would be taxed as if you only earned 90K for that year. The 10K + any gain is taxed when you take it out of the RRSP. For TFSA, you pay tax on your whole 100K even if you put 10K in TFSA (within contribution rules/limits) and 0 taxes on any gains. Typically you take money out of RRSP when you retire because most people would be earning far less at that point in life and would be taxed in a different bracket. – Viv Oct 15 '19 at 20:08

In Canada only TFSAs and RRSPs are tax efficient in the sense that they allow you to forgo paying taxes on dividends and capital gains (TFSAs), or defer paying taxes until a later time (RRSPs). Any major bank will be able to set up an investment account for you where you can buy/sell/trade US equities. You will have to pay capital gains taxes on any dividends that your equities generate, and when you sell your stocks you will have to pay capital gains taxes on any increase in the value of the stock. If you are holding US equities you will also need to pay foreign withholding taxes on any dividends that you earn. So in order to make your account the most tax efficient you should avoid investments which generate large dividend payments.

I would also say that an RRSP is frequently a better investment vehicle than a TFSA. This website covers the basics, but you should also consider the fact that you can take the tax refund that you get and invest that as well where it can also experience compounding interest. So don't rule out RRSPs just because you'll eventually have to pay some tax on them.

  • Thanks for the insights. I don't rule out RRSPs because of tax, [on the contrary wouldn't it be for tax-advantage ?]. I don't want to lock my money in accounts which are only interesting at retirement and penalize you otherwise if you need it before that. Beside RRSP and TFSA, what are other kind of accounts that support US equity and interesting tax-wise ? – Kenny Oct 15 '19 at 14:46
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    @Kenny You have missed the fact that you got back the tax on the $30k investment when you put it in. – DJClayworth Oct 15 '19 at 20:53
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    @Kenny Correct. The 30% tax that is withheld counts towards your income tax for that year which will be at your marginal rate. But a two-year timeline almost negates the benefits of having the extra tax rebate to invest (it's hard to get a great return over only 2 years), and it is admittedly more time consuming to withdraw money from an RRSP compared to a TFSA -- not something you necessarily want to be doing when moving. I would say that if you were dealing with a 5 year time scale or longer an RRSP might make more sense. I'm not sure how holding a RRSP in a foreign country would work either – Dugan Oct 16 '19 at 17:08
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    Foreign withholding taxes are taxes that are applied when you are receiving income from foreign countries. e.g. If you buy US equities and they pay you a dividend on your shares those dividends will be taxed at a rate of 15%. See this website for more details. If you hold the funds in an RRSP these fees are waived. If you have them in a TFSA they will be automatically deducted from your dividend payments (after you complete a little bit of paperwork-- if you don't complete the paperwork they'll be taxed at a rate of 35%) – Dugan Oct 16 '19 at 17:12
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    Whatever your income for that year is (including withdraws from your RRSP) would determine your marginal tax rate. If it was lower at the time of withdrawal than it was when you contributed then you would have an added tax savings. – Dugan Oct 16 '19 at 20:19

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