I live in Canada. VTI and VUN are both US total market index funds through Vanguard. VTI is the American version, VUN is the Canadian version.

VTI has an MER of 0.04% but the dividends are subject to a 15% foreign withholding tax, and you need to pay for currency conversion. Conversely, VUN has an MER of 0.16% and no taxes on dividends (other than capital gains).

If my bank charges 15 basis points for currency conversion to buy VTI, does it still make sense to buy VTI assuming I'm holding it for more than 3 years since the cumulative cost of VTI would be 0.15% + 0.15% + (3 x 0.04%) compared to (3 x 0.16%)?

  • I think that the 0.15% in your equation should be (15% * dividend_ratio)
    – D Stanley
    Nov 25 '19 at 21:33
  • Also, do you get a tax credit in Canada for the foreign taxes paid?
    – D Stanley
    Nov 25 '19 at 21:35
  • @D Stanley -- sorry, the 0.15% referred to the 15 basis points for currency conversion. I have omitted the cost of dividend taxes from the equation, but you're correct in that they would amount to 15% on 2% dividends annually. And yes, we do get a federal foreign tax credit.
    – Dugan
    Nov 25 '19 at 21:41
  • Ah OK I missed that. If you get a tax credit then the foreign tax may be a wash and can be ignored.
    – D Stanley
    Nov 25 '19 at 21:47
  • Will you be holding in a registered or non-registered account? Nov 25 '19 at 23:26

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