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As far as I read in many articles, all earnings (capital gains and dividends) from Canadian stocks will be always tax-free. Right?

In contrast, holding U.S. or any foreign stock that yields dividends in a TFSA will pay 15% withholding tax and it is not recoverable. But if you hold the same stock in a non-registered account, this 15% withholding tax can be used as a foreign tax credit? Is this true or not or what are the considerations?

Canadian dividends that are in a non-registered account will pay taxes, I presume and I don't know how much, but the amount can be used also as a tax credit or are unrecoverable?

I read also that if you don't want to pay withholding taxes from foreign dividends you can hold your stock in a RRSP or RRIF? Is this true? But at some point, if I withdraw the money, who do I need to pay taxes, U.S. or Canada?

Has someone experienced these scenarios?

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As far as I read in many articles, all earnings (capital gains and dividends) from Canadian stocks will be always tax-free. Right? There's no withholding tax, ie. a $100 dividend means you get $100. There's no withholding for capital gains in shares for anybody.

You will still have to pay taxes on the amounts, but that's only due at tax time and it could be very minor (or even a refund) for eligible Canadian dividends. That's because the company has already paid tax on those dividends.

In contrast, holding U.S. or any foreign stock that yields dividends in a TFSA will pay 15% withholding tax and it is not recoverable.

Correct, but the 15% is a special rate for regular shares and you need to fill out a W8-BEN. Your broker will probably make sure you have every few years.

But if you hold the same stock in a non-registered account, this 15% withholding tax can be used as a foreign tax credit? Is this true or not or what are the considerations?

That's true but reduces your Canadian tax payable, it's not refundable, so you have to have some tax to subtract it from.

Another consideration is foreign dividends are included 100% in income no mater what the character is. That means you pay tax at your highest rate always if not held in a tax sheltered account.

Canadian dividends that are in a non-registered account will pay taxes, I presume and I don't know how much, but the amount can be used also as a tax credit or are unrecoverable?

What happens in order to take into account taxes paid by the company is,

  • you get $100 dividend
  • you add $140 to your income for taxes (and pay tax on it)
  • you get back $35 to account for taxes already paid by the company.
  • (numbers approximate)

I read also that if you don't want to pay withholding taxes from foreign > dividends you can hold your stock in a RRSP or RRIF?

You don't have any withholding taxes from US entities to what they consider Canadian retirement accounts. So TFSAs and RESPs aren't covered.

Note that it has to be a US fund like SPY or VTI that trades in the US, and the account has to be RRSP/RRIF. You can't buy a Canadian listed ETF that holds US stocks and get the same treatment. This is also only for the US, not foreign like Europe or Asia.

Also something like VT (total world) in the US will have withholding taxes from foreign (Europe & Asia mostly) before the money gets to the US. You can't get that back.

Just an honourable mention for the UK, there's no withholding taxes for anybody, and I hear it's on sale.

But at some point, if I withdraw the money, who do I need to pay taxes, > U.S. or Canada?

Canada.

  • Outstanding answer. Thank you so much. I forgot to mention in my first paragraph about capital gains and dividends are tax-free if they are held in a TFSA. So in that case they will be completely free, right? Concerning the form w8-ben, if you buy stocks though Computershare, how do you manage that form? In fact a have another question in this community about that form. money.stackexchange.com/q/66566/32701 – Maximus Decimus Jun 25 '16 at 4:53
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    Canadian capital gains are tax free in a TFSA. The dividends are tax free as well except the company has aready paid tax. So depends on what tax free means I guess. There's no unrecoverable withholding tax. I thought computershare was just a transfer agent. I'd call my broker. – brian Jun 25 '16 at 5:05
  • Very appreciated. In case of Computershare(CS) I can buy/sell US and/or CAD stocks without a stockbroker. I want to steer the CAD stocks to my TFSA, but in case of the US stocks (with dividends) I don't know how to proceed. Holding them in a TFSA or a non-registered account. In my research I found a preliminary info about this form W8-BEN, but I don't know how to manage this form because with CS is DIY thing. I'm very new into this. I contacted agents from banks and I lost money, that's why I want to do everything on my own. Besides of this subject, any key tip to find myself a good broker? – Maximus Decimus Jun 25 '16 at 6:09
  • US dividend paying stocks are best held in a RRSP. Banks aren't really brokers though they do sell mutual funds. Each big bank has a discount brokerage, I'd try one of those first. By DIY, you mean your own investing decisions. A discount broker is prohibited from giving investment advice. – brian Jun 25 '16 at 15:08

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