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Canada Foreign Investment Guide

the foreign investment for the Canadian investors. The US withholding tax — the "15% withheld on the US dividends paid to the Canadian residents" (the "Canada-US tax treaty rate"). The RRSP exemption — the "US dividends inside the RRSP are NOT subject to the US withholding tax" (the "RRSP is the recognized retirement plan under the Canada-US treaty"). The TFSA is NOT exempt — the "US dividends inside the TFSA are subject to the 15% US withholding tax" (the "TFSA is NOT recognized under the treaty"). The T1135 foreign property reporting — the "Canadian resident must file the T1135 form if the total cost of the specified foreign properties exceeds $100,000 CAD". The foreign tax credit — the "Canadian taxpayer can claim the foreign tax credit for the foreign withholding tax paid on the foreign investment income". The Norbert's gambit — the "strategy to convert the CAD to the USD at the spot exchange rate using the interlisted stocks (the 'DLR ETF')".

Foreign Withholding Tax

• US dividend withholding: The "15% for the Canadian residents under the Canada-US tax treaty" (the "withholding is done by the US broker or the US custodian"). The "rate is 30% if the beneficial owner is NOT eligible for the treaty benefits".
• International dividend withholding: The "15% to 25% on the dividends from the other countries" (the "varies by the country and the tax treaty"). The "Japan: 15%", the "UK: 15%", the "Germany: 15%", the "Australia: 15%", the "Switzerland: 15%".
• RRSP and the withholding tax: The "US dividends: 0% withholding inside the RRSP". The "international dividends: 15% to 25% even inside the RRSP (the 'no treaty exemption for the international stocks in the RRSP')".
• TFSA and the withholding tax: The "US dividends: 15% withholding (the 'withholding is lost — the TFSA cannot claim the foreign tax credit')". The "international dividends: 15% to 25% withholding".

Foreign Currency & Currency Hedging

• Norbert's gambit: The "buy the DLR ETF (the 'Horizons US Dollar Currency ETF') in the CAD" — the "journal the DLR units to the DLR.U (the USD equivalent)" — the "sell the DLR.U in the USD account". The "cost: 2 brokerage commissions" (the "no forex spread").
• Currency-hedged ETFs: The "CAD-hedged ETFs eliminate the currency risk" — the "Vanguard US Total Market Index ETF — the CAD-hedged (VUS)" — the "iShares Core S&P 500 Index ETF — the CAD-hedged (XSP)".
• Currency risk: The "USD/CAD exchange rate affects the returns on the US investments" — the "CAD weakening increases the returns" — the "CAD strengthening decreases the returns".

T1135 Foreign Property Reporting

• Threshold: The "total cost amount of the specified foreign properties exceeds $100,000 CAD at any time during the year".
• Specified foreign properties: The "foreign stocks, the foreign bonds, the foreign ETFs, the foreign mutual funds, the foreign real estate (the non-personal use)", the "bank accounts in the foreign countries".
• Exempt properties: The "personal-use property (the vacation home)" — the "business property" — the "property held in the registered accounts (the RRSP, the TFSA, the RESP, the RDSP)".
• Penalty: The "$25 per day (up to $2,500) for the late filing" — the "higher penalty of $500 to $12,000 for the gross negligence".

For the US citizens and the cross-border tax rules, see our US Citizens Tax Guide →. For the foreign income and the foreign tax credit, see our Foreign Income Guide →.