Tax implications For Canadian Investors Buying U.S. Stocks

Up to date on April twenty third, 2025 by Bob Ciura

For Canadian buyers, having publicity to america inventory market is essential.

There are a variety of explanation why.

First, america is the most important inventory market on the earth. With a view to keep away from house nation bias and have a globally diversified funding portfolio, publicity to American shares is required.

In the case of the perfect U.S. dividend shares to purchase, we’ve compiled a listing of blue-chip shares with 10+ years of dividend will increase.

Blue-chip shares are established, financially robust, and persistently worthwhile publicly traded corporations.

Their energy makes them interesting investments for comparatively secure, dependable dividends and capital appreciation versus much less established shares.

This analysis report has the next sources that will help you spend money on blue chip shares:

Useful resource #1: The Blue Chip Shares Spreadsheet Listing

This record comprises vital metrics, together with: dividend yields, payout ratios, dividend development charges, 52-week highs and lows, betas, and extra.

There are at present greater than 500 securities in our blue chip shares record.

Second, there are specific sectors which might be underrepresented within the Canadian inventory market. Examples embody healthcare, know-how, and client staples. Curiously, these sectors are among the many strongest within the U.S. market.

To spend money on shares from america, Canadian buyers want to know how this may affect their tax payments.

This text will talk about the tax implications for Canadians that spend money on U.S. shares, together with examples of dividend- and non-dividend-paying shares held in each taxable accounts and non-taxable accounts.

Desk of Contents

Whereas we suggest studying this text in its entirety, you may skip to a selected part of this text utilizing the desk of contents beneath:

Capital Positive factors Tax

There are two kinds of investing taxes that Canadian buyers pays if they’re investing outdoors of a tax-deferred retirement account. The primary is capital positive aspects tax, which shall be mentioned first.

A capital achieve happens when a safety is offered for greater than its buy worth. Conversely, a capital loss comes from promoting a safety for lower than it was bought for.

Canadian buyers should pay capital positive aspects tax on no less than 50% of their realized capital positive aspects. The 2024 Federal Finances introduced a rise within the capital positive aspects inclusion charge from 50% to 2 thirds on the portion of capital positive aspects realized within the yr that exceed $250,000 for people, for capital positive aspects realized on or after June 25, 2024.

The $250,000 threshold applies to capital positive aspects realized by a person internet of any capital losses realized within the present yr or carried ahead from prior years. The tax charge for capital positive aspects is equivalent to the person’s marginal tax charge.

Marginal tax charges are composed of a federal element (which is paid in the identical quantity by all Canadians) and a provincial element (which varies relying on which province you reside in).

In response to the Canada Income Company, present federal tax charges by tax bracket are:

15% on the primary $55,867 of taxable revenue, +
20.5% on the subsequent $55,866 of taxable revenue (on the portion of taxable revenue over $55,867 as much as $111,733), +
26% on the subsequent $61,472 of taxable revenue (on the portion of taxable revenue over $111,733 as much as $173,205), +
29% on the subsequent $73,547 of taxable revenue (on the portion of taxable revenue over $173,205 as much as $246,752), +
33% of taxable revenue over $246,752.

As talked about, provincial tax charges fluctuate by province. Examples on this article will use Ontario’s tax charges, as it’s Canada’s most highly-populated province. Ontario tax charges by tax bracket are proven beneath:

5.05% on the primary $46,226 of taxable revenue, +
9.15% on the subsequent $46,228, +
11.16% on the subsequent $57,546, +
12.16% on the subsequent $70,000, +
13.16% on the quantity over $220,000

So how do capital positive aspects taxes fluctuate for holders of U.S. shares?

Thankfully, the capital positive aspects tax paid on investments in U.S. shares is equivalent to the capital positive aspects paid on Canadian securities. The one minor distinction is that capital positive aspects have to be expressed in Canadian {dollars} for the aim of calculating an investor’s tax legal responsibility.

An instance may also help us perceive capital positive aspects tax from U.S. shares within the context of those Canadian tax brackets. Let’s assume that you’re a Canadian investor who has executed the next trades:

Bought 100 shares Johnson & Johnson (JNJ) for US$100 at a time when the USD to CAD trade charge was 1.25
Bought your Johnson & Johnson shares for US$125 at a time when the USD to CAD trade charge was 1.15

You’ll pay capital positive aspects on the distinction between your buy worth and your sale worth, expressed in Canadian {dollars}. The next desk may also help us to know the right solution to calculate the CAD-denominated capital achieve. Though indirectly calculated within the picture above, the capital achieve for this transaction – expressed in U.S. {dollars} – is US$2,500.

Nevertheless, that’s irrelevant for the aim of calculating capital positive aspects tax as a result of capital positive aspects tax is predicated on transaction costs expressed in Canadian {dollars}. What actually issues is the CAD$1,875 capital achieve proven within the backside proper cell of the desk.

That is the quantity used to calculate capital positive aspects. As talked about beforehand, no less than half of this quantity could be taxed on the investor’s marginal tax charge. We are going to assume for simplicity’s sake that the investor is within the highest tax bracket, which is 46.16% for Ontario residents.

The next desk breaks down the capital positive aspects tax calculation for this hypothetical funding in Johnson & Johnson (JNJ). So, the capital positive aspects tax could be no less than $432.75.

This calculation was fairly concerned and demonstrates how sophisticated the calculation of capital positive aspects tax might be for Canadians.

Thankfully, capital positive aspects tax might be tax-free or tax-deferred if U.S. shares (or shares from some other nation) are held in Canadian retirement accounts.

We talk about the 2 kinds of Canadian retirement accounts (TFSAs and RRSPs) in a later part of this text.

For now, we’ll transfer on to discussing the taxation of dividends paid to Canadian buyers from U.S. firms.

Dividend Tax

In contrast to capital positive aspects taxes (that are calculated in the identical means for U.S. shares and Canadian shares), the taxes that Canadian buyers pay on worldwide inventory dividends are completely different than the taxes they pay on home dividends.

This is because of a particular sort of dividend tax referred to as “withholding tax.” In contrast to different taxes paid by Canadian buyers, these taxes are withheld at supply (by the corporate that pays the dividend) and remitted to their very own tax authority – which, for United States corporations, is the Inner Income Service (IRS).

Dividend withholding taxes meaningfully cut back the revenue that Canadian buyers are capable of generate from U.S. shares. Thankfully, this impact is partially offset by a particular tax treaty between america and Canada (referred to as the Conference Between Canada and america of America).

The U.S. withholding tax charge charged to international buyers on U.S. dividends is often 30% however is lowered to fifteen% for Canadians as a consequence of this treaty.

How does this examine to the common withholding tax of nations throughout the globe?

Even after accounting for the particular tax treaty, the U.S. continues to be an unfavorable marketplace for Canadian buyers from the angle of tax effectivity.

In response to Blackrock, the weighted common international withholding tax on worldwide inventory dividends is 12%. Even after accounting for the tax treaty, Canadians nonetheless pay a 15% withholding tax — 25% greater than the weighted common dividend withholding tax around the globe.

Canadian buyers shall be glad to listen to that this international withholding tax is ready to be reclaimed come tax time. The Canada Income Company lets you declare a international tax credit score for the withholding tax paid on United States dividends. This prevents buyers from paying tax twice on their dividend revenue.

Nonetheless, U.S. dividends will not be as tax environment friendly as their Canadian counterparts. The explanation why is considerably sophisticated and is expounded to a Canadian taxation precept referred to as the “dividend tax credit score.”

The dividend tax credit score meaningfully reduces the taxes that Canadians pay on dividends, and causes dividend revenue to be the only most tax-efficient type of revenue out there to Canadians.

In response to MoneySense:

When a non-resident invests in U.S shares or U.S.-listed trade traded funds (ETFs), the usual withholding tax on dividends is 30%. A Canadian resident is entitled to a decrease withholding charge of 15% underneath a treaty between the 2 international locations if they’ve filed a type W-8 BEN with the brokerage the place they maintain the investments.

Our suggestion for Canadian buyers in search of publicity to U.S. shares is to carry their U.S. shares in retirement accounts, which concurrently reduces their tax burden and dramatically reduces the tax complexity of their funding portfolios.

We talk about dividend taxes in retirement accounts within the subsequent part of this text.

Dividend Tax in Retirement Accounts

One of the best ways for Canadian buyers to achieve publicity to U.S. shares is thru retirement accounts.

There are two main retirement accounts out there for Canadian buyers:

Each provide tax-advantaged alternatives for Canadians to deploy their capital into monetary property. With that mentioned, there are vital variations as to how every account capabilities.

The Tax-Free Financial savings Account (TFSA) permits buyers to contribute after-tax revenue into the account. Funding positive aspects and dividends held throughout the account are topic to no tax and no tax is incurred upon withdrawal from the account. TFSAs are functionally just like Roth IRAs in america.

The opposite sort of retirement account in Canada is the Registered Retirement Financial savings Plan (RRSP). These accounts permit Canadian buyers to contribute pre-tax revenue, which is then deducted from their gross revenue for the aim of calculating every year’s revenue tax.

Revenue tax is paid later, upon withdrawals from the RRSP. RRSPs are functionally equal to 401(okay)s inside america. In different phrases, revenue earned in RRSPs at tax-deferred.

Each of those retirement accounts are very enticing as a result of they permit buyers to deploy their capital in a tax-efficient method. Usually, no tax is paid on each capital positive aspects or dividends as long as the shares are held inside retirement accounts.

Sadly, there’s one exception to this rule. The withholding tax paid to the IRS on dividends from United States companies continues to be paid inside TFSAs. Because of this, U.S. shares that pay out giant dividends shouldn’t be held inside a TFSA if potential.

As a substitute, the RRSP is the perfect place to carry U.S. dividend shares (however not MLPs, REITs, and so forth.) as a result of the dividend withholding tax is waived. In actual fact, no tax is paid in any respect on U.S. shares held inside RRSPs.

Because of this Canadian buyers ought to maintain all dividend-paying U.S. shares inside their RRSPs if they’ve ample contribution room. U.S. shares that don’t pay dividends might be held in a TFSA.

Lastly, Canadian dividend shares must be held in non-registered accounts to make the most of the dividend tax credit score.

Closing Ideas

This text started by discussing among the advantages of proudly owning U.S. shares for Canadian buyers earlier than elaborating on the tax penalties of implementing such a technique.

After describing the tax traits of U.S. shares for Canadians, we concluded that the perfect practices are to:

Maintain dividend-paying U.S. shares inside an RRSP
Maintain non-dividend-paying or low-yielding U.S. shares (which might be anticipated to have greater development prospects) inside a TFSA
Maintain Canadian shares in a taxable account — particularly dividend-paying Canadian shares, to make the most of the dividend tax credit score

In case you are a Canadian dividend investor and are excited about exploring the U.S. inventory market, the next Certain Dividend databases include among the most high-quality dividend shares in our funding universe:

The Dividend Aristocrats: S&P 500 shares with 25+ years of consecutive dividend will increase
The Dividend Achievers: dividend shares with 10+ years of consecutive dividend will increase
The Dividend Kings: thought of to be the best-of-the-best in relation to dividend development, the Dividend Kings are an elite group of dividend shares with 50+ years of consecutive dividend will increase

Alternatively, you might be trying to tailor a really particular group of dividend shares to satisfy sure yield and payout traits. If that is certainly the case, you may be within the following databases from Certain Dividend:

One other solution to strategy the U.S. inventory market is by developing your portfolio in order that it owns corporations in every sector of the inventory market. Because of this, Certain Dividend maintains 10 databases of shares from every sector of the market. you may entry these databases beneath.