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, 2019 at 21:33
  • Also, do you get a tax credit in Canada for the foreign taxes paid?
    – D Stanley
    Nov 25, 2019 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, 2019 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, 2019 at 21:47
  • 1
    @ Chris W. Rea I do both registered and non-registered, I’m aware of the refund on withholding taxes in the RRSP, but as D Stanley points out the tax credit makes that immaterial.
    – Dugan
    Nov 26, 2019 at 1:10

1 Answer 1


Generally Canadian listed ETF's are a better choice, they have less paperwork, better currency conversions, etc. The higher the tax bracket the more true this is, and the more you want to pay the 15% vs your tax bracket.

It's complicated by your account type, your Canadian tax rate and how well you can convert CAD -> USD.

In an RRSP you can avoid the 15% tax all together if you hold the US listed ETF(VTI), but if you can't convert your money to USD efficiently, it may not matter.

If you are holding more than $100k CAD in VTI, you also have more paperwork(T1135 form).

Bottom line, it's complicated. PWL capital has a paper that goes through the dirty details here: https://www.pwlcapital.com/wp-content/uploads/2018/06/2016-06-17_-Bender-Bortolotti_Foreign_Withholding_Taxes_Hyperlinked.pdf

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