Should I buy U.S. Dividend stocks when I’m a Canadian?

[menimi]

Hey guys I wanted to know whether to buy u.s. dividend stocks in my TFSA or RRSP. Also should I buy u.s. dividend stocks or stick to Canadian dividend stocks?

Also I currently have a wealthsimple and questrade trading account. I am prolly going to open a TD investing account for dividend payments.

Or is it fine buying dividend stocks in a wealthsimple account?

 

[resjudicata]

@menimi Buy US div stocks in an RRSP preferably.

In a TFSA, US dividends are subject to a 15% withholding tax. The same is not true of an RRSP.

If you're buying US stocks in a WS trade account, keep in mind they take a hefty fee for exchanging CAD for USD. And when you sell, it converts back to CAD, incurring a fee once again.

 

[lightspeed2slow]

@resjudicata One big caveat if one is to buy a US dividend stock that is a MLP. MLP's are not covered by the tax treaty so they are subject to the 35% withholding on their dividends regardless of which account you hold it in.

 

[raywood]

@resjudicata Is XGRO a US div stock?

 

[jjp297]

@raywood No, it's listed on the TSX.

 

[silent_observer]

@resjudicata Isn't this a "pay me now or pay me later" situation?

If I put them into a TFSA then I have to pay the 15% withholding tax - but when I withdraw the money it is tax free. If I put them in my RRSP then I avoid the 15% withholding tax but I have to treat a withdrawal as taxable income at my marginal rate (which may be higher than 15%).

Also, any stock price increases when I finally sell the stock and withdraw the money would be treated as:

1) taxable income from RRSP

2) taxable capital gains from non-registered account

3) tax free from TFSA

 

[michelet]

@silent_observer This is a common misconception. TFSAs and RRSPs are equivalent in terms of their income tax consequences assuming your marginal rate is equal at contribution and withdrawal.

In both TFSA and RRSP, income and growth are tax-free. It's just a matter of whether you pay the income tax before or after.

 

[silent_observer]

@michelet Thanks for your response. I concentrated my dividend stocks (both US and Canada) in my TFSA and my non-dividend stocks in my RRSP. Now that I'm retired I'll start to take my dividends out to supplement my pension without having to treat them as taxable income (other than the 15% withholding tax).

I think another benefit of having dividends in my TFSA is that if I took the money out of my RRSP (or convert it into a LIRA and take money out that way) then that extra income could increase my marginal tax rate and might (I'm not sure) impact things like my OAS clawback rate or other income-dependent benefits.

 

[joeriley]

@silent_observer Not quite, because in your TFSA you've paid tax at your marginal rate to CRA on the invested money already, and then you have the 15% withholding to the IRS on top of that. Whereas in your RRSP you have just the amount owed to CRA at your marginal rate on withdrawal and no tax to the IRS.

The withholding tax for dividends from US stocks is taken at source before the dividend crosses the border into your account and it means that you get 15% less dividend income from US dividend stocks held in your TFSA compared to holding the same stocks in an RRSP.

 

[somer_222]

@resjudicata I was told itrade did something like this well. Do you know if it's true?

 

[shekinah1978]

@menimi What is the point of opening a TD account? Questrade does the same thing but cheaper

 

[jayason]

@shekinah1978 Because I have shares in TD. (I use questrade tho )

 

[midst]

@menimi You should buy them in an RRSP as otherwise there are taxes to pay in the USA.

Although what US dividend stocks are you buying? American yields are terrible.

 

[kunzite]

@menimi You can open a TD self directed US Dollar RRSP account. US dividends will be tax free.

US Dividend in TFSA will be subject to withholding tax.

 

[arinola_s]

@kunzite When you say subject to withholding tax.. does that mean you have to file US taxes? Or they automatically take % of your dividends?

 

[kunzite]

@arinola_s It’s automatically deducted from your account.

 

[alvena]

@menimi I usually hold NOBL in my RRSPs, but I'm in cash for that position these days.

 

[resjudicata]

@menimi Open rrsp usd account on questrade.

 

[ukbeliever220485]

@menimi The case against focusing on dividends:

• https://www.pwlcapital.com/the-irrelevance-of-dividends-still-a-non-starter/

See also:

• https://canadiancouchpotato.com/2011/01/18/debunking-dividend-myths-part-1/

 

[turmoil77]

@menimi The answer is no, not because of the account or whatever, but because chasing dividends doesn’t make sense in an era of low/no fee liquidity.