The ins and outs of … U.S. dividend withholding taxes

Article Excerpt

We’ve long advised holding 20% or more of your portfolio in U.S. stocks. We see exposure to U.S. stocks, and the U.S. dollar, as a valuable form of diversification. It also gives you a hedge against a drop in the Canadian dollar, especially if you hold your stocks in a U.S.-dollar brokerage account. Canadian shareholders pay a 15% withholding tax on dividends from U.S. stocks. In most cases, however, if you hold the stocks in non-registered cash accounts, you can get a Canadian income-tax credit to offset that tax. Better still, thanks to rules in the U.S./Canada tax treaty, the U.S. does not withhold the 15% from U.S. dividend income on stocks you hold in an RRSP. If you hold those dividend-paying U.S. stocks in a TFSA, on the other hand, the 15% tax is withheld. The U.S. wants its tax, and the latest U.S./Canada treaty doesn’t mention TSFAs, since they hadn’t yet been created when the treaty was last updated. As…