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I'm Canadian, but I like U.S. ETFs because there's more variety than Canadian ETFs.

  1. What means "recoverable" below? 100% fully refundable to me?

  2. How do I recover U.S. withholding taxes?

  3. Why does the U.S. charge withholding taxes at all, if Canadians can 100% recover them?

A. Canadian fund that holds US or international stocks directly.

  • In a taxable account, US or international withholding taxes apply, but are recoverable.
  • In an RRSP or TFSA, US or international withholding taxes apply and are not recoverable.

B. US-listed ETF that holds US stocks.

  • In a taxable account, US withholding taxes apply, but are recoverable.
  • In an RRSP, US withholding taxes do not apply.
  • In a TFSA, US withholding taxes apply and are not recoverable.

Foreign Withholding Tax Explained | Canadian Couch Potato

C. US-listed ETF that holds international stocks.

  • In a taxable account, international withholding taxes apply and are not recoverable. US withholding taxes apply, but are recoverable.
  • In an RRSP, international withholding taxes apply and are not recoverable. US withholding taxes do not apply.
  • In a TFSA, international and US withholding taxes apply and are not recoverable.
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  1. Foreign tax credit

Line 40500. You may be able to claim this credit for foreign income or profit taxes you paid on income you received from outside Canada and reported on your Canadian tax return. Tax treaties with other countries may affect whether you are eligible for this credit.

  1. See 1 but also look at your T slips for "foreign tax paid"

  2. The tax is paid to the US and refunded by Canada. The same thing happens in reverse if Canada withholds tax from a US tax resident. It's set out in a treaty.

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It may be worth noting that the FTC is a non-refundable tax credit and thus, if your income falls under an effective tax rate of less than 15%, then you won't be able to fully recover the IRS 15% Foreign Withholding tax for those US dividends.

Please see this for more info.

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