Posted on February 13, 2024 by Mark | 24 Comments
Should you own Canadian-listed ETFs or U.S.-listed ETFs?
Reader:
Hey Mark, I enjoy your site and reading about your journey. What are your thoughts: should I own Canadian-listed ETFs or U.S-listed ETFs? Thoughts? Thanks in advance!
Love the question and happy to provide a personal take. Read on!
Should you own Canadian-listed ETFs or U.S.-listed ETFs?
Even though I own many individual Canadian dividend paying stocks for income and growth, I recognize the power and merits of putting low-cost ETFs in your portfolio for wealth-building – and avoiding any individual stock risk in the process. I own low-cost ETFs for extra diversification myself…
With the advent of All-in-One Exchange Traded Funds (ETFs), you can literally own a world of stocks in one ETF.
No more portfolio rebalancing.
No more decisions about where to invest your money.
No advisor necessary.
Pick one ETF, invest, keep investing including across all accounts.
You can find my favourites in this specific list and I’ll come back to these All-in-One ETF ideas later on…
The Best All-in-One Exchange Traded Funds
All-in-One or not, there are some great Canadian-listed ETFs to invest with.
This is because I believe not all ETFs are created equal. Far from it.
Should you own Canadian-listed ETFs or U.S.-listed ETFs?
In my opinion, there are a few reasons to own just Canadian-listed ETFs in your portfolio, including any of those asset allocation favourites above.
1. You spend most of our money in Canada, in Canadian dollars.
Using Canadian-listed ETFs avoids currency conversion hassles including use of Norbert’s Gambit.
Norbert’s Gambit – how to exchange Canadian to U.S. dollars – for less
2. Some online brokerages support commission-free ETF purchases.
There’s never been a better time to be a DIY investor.Not only is it easy to buy your low-cost ETFs using an online brokerage these days, you can sometimes (depending on the brokerage) buy your Canadian-listed ETFs commission-free/free of charge.
3. You want no worries about any U.S. estate taxes.
Yes, this might only apply to the wealthy, including when taxable accounts or “U.S. property” come into play, but it could be a consideration for a few folks depending on other assets they own.
U.S. tax filing requirements and U.S. estate tax can apply to Canadians if those assets are large enough, including U.S. stocks or ETFs you own inside your investment accounts.
Not to worry folks, but….
“A U.S. federal estate tax return must be filed if a deceased Canadian resident who is not an American citizen owned U.S.-situated assets exceeding $60,000 US in fair market value at the time of death. However, if the deceased made substantial lifetime gifts of U.S. property, a U.S. estate tax return may be required even if the U.S. assets do not exceed $60,000 at the time of death.”
Source: TaxTips.ca.
I won’t go into the weeds on this subject so check out this very comprehensive KPMG article on such details and speak to a U.S.-Canadian tax accountant specialist to fact-check anything before you make some decisions.
Owning Canadian-listed ETFs are not “U.S. property”.
Canadian-listed ETFs that own U.S. stocks are themselves considered to be Canadian residents, just like an individual taxpayer. They will be subject to withholding tax before a dividend is received by the fund. This withholding tax is generally reported on a T3 slip (or sometimes a T5 slip, depending on the fund) and can likewise be claimed for a foreign tax credit in Canada (in a taxable account).
4. You embrace simplicity.
In building a simple ETF portfolio and avoid toying with your portfolio (like I have been guilty of in the past!) you can do other, more valuable things with your time and build your retirement nest egg in the process using low-cost ETFs.
Should you own Canadian-listed ETFs?
I believe unless you have at least $100,000 or so to invest in any ETF, it might not make too much sense to have the tail tax wag the investing dog. (This assumes of course, foreign withholding taxes (FWT) are a concern for you.)Meaning, the benefits to own U.S.-listed ETFs over Canadian-listed ETFs might not be worth it in certain accounts until you reach that threshold whereby lower MERs might be more beneficial.
Thanks to our Canada – U.S. Tax Treaty, an Registered Retirement Savings Plan (RRSP) or similar tax-deferred retirement savings account (i.e., RRIF) gets special treatment by the IRS. There is generally no withholding tax if you own U.S. stocks or U.S.-listed ETFs in those accounts. However, if you own a Canadian-listed ETF that owns U.S. stocks, the tax is withheld before you get your distribution…
So, what I’m saying is: you will need to live with some foreign withholding taxes (FWT) on Canadian-listed ETFs that hold U.S. and international assets, in your RRSP/RRIF or TFSA as your primary wealth-building accounts…
If you are utilizing an RRSP/RRIF or LIRA/LIF in particular and you have larger portfolio assets (i.e., >$100,000) then maybe owning U.S-listed ETFs could be better for you.
Should you own U.S.-listed ETFs?
U.S.-listed ETFs have the following tax implications based on asset location if they pay distributions:
- Within RRSP/RRIF or LIRA/LIF = no foreign withholding taxes (FWT).
- Within RESP or TFSA = pay 15% foreign withholding taxes (not recoverable).
- Within non-registered accounts = pay 15% foreign withholding taxes (which is recoverable).
In bold, of note, you should know that U.S. stocks or ETFs held inside a TFSA are not eligible for the foreign income tax credit. So, there is no advantage to own any U.S.-listed assets over Canadian-listed assets from a tax perspective inside the TFSA.
The withholding tax is non-recoverable inside the TFSA since you can only get credit for foreign tax paid on taxable investment income on your tax return, and TFSAs are, of course, tax free. As a result, some investors may steer away from U.S. stocks in their TFSA – which I personally do.
Beyond the benefit avoiding foreign withholding taxes, the main reason to keep U.S.-listed ETFs in your RRSP/RRIF and LIRA/LIF in particular is lowerManagement Expense Ratios (MERs).
See my table for some examples:
| U.S.-listed ETF | MER (RRSP/RRIF or LIRA/LIF) | MER (TFSA) | Canadian-listed ETF equivalent | MER (RRSP/RRIF or LIRA/LIF) | MER (TFSA) |
| Vanguard Total Market Index ETF (VTI) | 0.03% | 0.03% + FWT | Vanguard US Total Market Index ETF (VUN) | 0.17% + FWT | |
| iShares Core S&P 500 ETF (IVV) | 0.03% | 0.03% + FWT | iShares Core S&P 500 Index ETF (XUS) | 0.09% + FWT | |
| Vanguard S&P 500 ETF (VOO) | 0.03% | 0.03% + FWT | Vanguard S&P 500 Index ETF (VFV) | 0.09% + FWT | |
Note: If the ETF pays distributions….then FWT is likely to add +/- close to 0.30% in tax drag.
I see the general forumla as follows:
Total cost VUN vs. VTI in RRSP = CDN ETF MER = 0.17% (VUN) + (15% FWT x (~2.0% ETF yield – cost of VTI ETF 0.03%)) = ~ 0.47% give or take for VUN vs. VTI at 0.03% inside the RRSP only.
Using U.S.-listed VTI just as a quick example:
- owning this inside your RRSP/RRIF or LIRA/LIF will avoid the 15% FWT that the U.S. government would otherwise impose. So, all distributions paid from VTI inside these accounts are yours to keep.
- owning this inside your TFSA has 15% FWT applied on distributions but you would not be able to claim it via the foreign tax credit (so you lose 15% off the top in distributions permanently). So, no real advantage in owning U.S. ETFs there.
- owning this inside your taxable account has 15% FWT applied on distributions, but you could claim that back year-end via the foreign tax credit come tax time.
Should you own Canadian-listed ETFs or U.S.-listed ETFs?
Yes and yes.
I believe to simplify your life with some key registered accounts:
- Consider owning Canadian-listed ETFs in your TFSA.
- Unless you have lots of assets ($$$) then own Canadian-listed ETFs now or long-term.
Instead of over-thinking this debate, here are some personal suggestions based on my own lessons learned on asset location (what to put where) and asset allocation (how much to put where):
- Before focusing on tax implications, determine your financial goals. This guide your investment choices. Plans come before products…
- Just focus on registered accounts first: TFSA, RRSP, RESP, etc. before non-registered investing as part of building your nest egg, including how foreign tax credits could be applied. Maxing out your TFSAs, RRSPs, and contributing to your child’s RESP is likely to make you wealthy anyhow…
- Once you have your plan defined consider low-cost, diversified Canadian-listed ETFs exclusively especially if you don’t want to own individual stocks like I do. Canadian-listed ETFs can offer some simple ways to create a diversified portfolio of stocks for decades to come – until you decide some tax efficiency could be a bigger priority…
How do I invest with ETFs?
I eat my own cooking here as much as possible…
Even though I own many individual Canadian dividend paying stocks for income and growth (I mentioned that above) I fully recognize and embrace the power that comes with putting low-cost ETFs in my portfolio for extra diversification.
So, I tend to have the following asset location guidelines for my equity ETFs:
- TFSA = a low-cost ex-Canada ETF. I have done this since 2016 using XAW.
- RRSP and LIRA = a low-cost U.S.-listed ETF. I have owned U.S.-listed ETFs and stocks in my RRSP for many years…for the ETF namely QQQ in recent years.
As I wrap this post, I hope this article has helped and answered the reader question.
As always with personal finance and investing, “it depends”!
By default, I believe it’s hard to go wrong with the following wealth-building recipe: keep a high savings rate, keep your costs low, minimize tinkering with your portfolio, diversify your investments, avoid greedy financial piranhas after your hard-earned dollars, and stay invested in equities as long as possible.
You can always see how I’ve built our portfolio and why I invest the way I do here on this page.
You can also read how low-cost ETFs provide meaningful diversification here.
Thanks for reading and as always I welcome your thoughts and comments.
Mark
Disclosure: this post is for general awareness purposes only and cannot be considered tax advice for your personal finance situation. All MERs, fees including the impacts of FWT are subject to change over time.
Further Reading:
You might also be interested in learning how I’m overcoming my bias to Canadian stocks here.
You might be wondering if you should even consider 100% stocks in your portfolio. Yes, you probably should at least until retirement and then some…
Mark
My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own Financial Independence, Work On Own Terms (FIWOOT!) path. Join the newsletter read by thousands. Always free.
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Ron June 5, 2024 at 12:11 am · Edit
I would like to avoid holding “foreign property” north of the $60,000 USD you mention, to circumvent dealing with the IRS.
Is it fair to say that owning Canadian listed ETFs holding US stocks are not considered “foreign property” (i.e., do not count towards these scary $60K) even in their USD ETF version ? for example, are HXQ.U or XUU.U trading on the Toronto Exchange considered Non US Property (although traded in USD), therefore do not count towards the 60K ? Thank you!Reply
Mark June 6, 2024 at 9:08 am · Edit
Hi Ron,
Correct, not tax-advice, but Canadian-listed ETFs (that may or do hold U.S. stocks or U.S. ETFs) are not considered foreign property so should you have more $60k at time of death, in those Canadian-listed ETFs, then certainly no need to be wary of IRS.
When it comes to T1135 as well:
https://www.blackrock.com/ca/investors/en/resources/faqs/distributions-and-tax
“Canadian individuals, corporations, trusts and partnerships who held specified foreign property with a total cost of more than $100,000 CDN any time during a taxation year must file Form T1135 unless certain exceptions are met.
Canadian iShares ETFs are not considered “specified foreign property”, hence, investors of Canadian iShares ETFs will not be required to report such investment on Form T1135, even if a Canadian iShares ETF itself invests in international securities.”
Also, any ETF listed on a Canadian exchange would be exempt from having to file a T1135, including USD ETFs listed on the Canadian exchange (commonly known as .U’s). These are Canadian-listed ETFs that are USD $$ denominated and may be ideal for people who have USD accounts or like to keep (lots) of USD for when they travel abroad.
Also, when it comes to T1135 – foreign investment property does not include:
1. property held in a registered account such as an RRSP or TFSA,
2. property used mainly for personal use and enjoyment, such as a vehicle, vacation property, jewellery, artwork….
3. US$ cash held in a Canadian financial institution.Reference: https://www.taxtips.ca/filing/foreign-asset-reporting.htm
I hope this is helpful but not tax advice.
Cheers!
MarkReply
Max February 18, 2024 at 10:58 am · Edit
Assumption with active mutual funds: I would imagine that FWT is in addition to the MER in the mutual fund world as well, making them even more expensive? Again, depending on which account a fund is housed in. Using a similar example, XYZ US Fund would have a different cost in a TFSA vs RSP or NonReg? Can you weigh in Mark? Thanks
Reply
Mark February 19, 2024 at 9:26 am · Edit
Just means expensive mutual funds get more costly! Best to avoid any high-fee products, regardless of asset location, period. 🙂
Here is a decent primer:
https://www.taxtips.ca/personaltax/investing/taxtreatment/mutual-funds.htmAnother one direct from Vanguard:
https://www.vanguard.ca/content/dam/intl/americas/canada/en/documents/WithholdingTax_Guide-final.pdfPersonally, not advice, for any taxable accounts or TFSA ownership U.S.-listed ETFs are not worth it.
U.S.-listed funds or ETFs can make sense inside the RRSP/RRIF or LIRA/LIF.Everyone is different though!
Thanks Max.
MarkReply
Tech February 16, 2024 at 8:47 am · Edit
I hold VTI in my RRSP it’s provides saving in MER fees and with the tax treaty there are no withholding taxes. Of course this will all be taxable income when I withdrawal. I also hold VTI in my TFSA there are withholding taxes (a Canadian resident is entitled to a lower withholding rate of 15% under a treaty between the two countries if they have filed a form W-8 BEN with the brokerage) on the dividends. there is also the added work/complexity and risk with exchange US$ CDN$. However, for me the lower MER and the tax free capital gains are worth the effort. You mention of the US tax rules and the limit of $60,000 which makes me think maybe I have overlooked some risk or US tax rules which might be an issue now that my TFSA US$ holdings exceed that level. I was under the impression RRSP and TFSA are not included in that 100K CDN$ value requiring reporting to the CRA form-t1135 . From CRA website “Specified foreign property held in an RRSP or a TFSA is excluded from Form T1135 reporting requirements”.
https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/information-been-moved/foreign-reporting/questions-answers-about-form-t1135.htmlI have not really looked into all the IRS rules and maybe should….
Reply
Mark February 17, 2024 at 8:45 am · Edit
VTI is a great low-cost fund…100%.
Yes, 15% will apply there inside the TFSA.
“I also hold VTI in my TFSA there are withholding taxes (a Canadian resident is entitled to a lower withholding rate of 15% under a treaty between the two countries if they have filed a form W-8 BEN with the brokerage) on the dividends.”Yes, very astute comment.
I had in my post this line and have clarified it relate to “U.S. property” since I have this older post too…I would have to fact-check some things of course since 2012. 🙂
Yes, this might only apply to the wealthy, including when taxable accounts or “U.S. property” come into play, but it could be a consideration for a few folks depending on other assets they own.
Since….in this post:
https://www.myownadvisor.ca/note-to-cra-foreign-income-reporting-doesnt-need-to-be-a-foreign-concept/
“Q3: I keep my U.S. stocks like Procter and Gamble (PG:US) and my U.S.-listed Exchange Traded Funds (ETFs) like VTI in my TFSA. The values of these U.S. holdings are worth about $110,000 CDN. Do I need to worry about this requirement?
No.
Securities held in these registered Canadian accounts are exempt from foreign income reporting: RRSPs, TFSAs, RESPs, RRIFs, LIRAs, LRIFs and RPPs.”
So, all that to say, for any U.S. stocks or ETFs, best to keep them in RRSP/RRIF as first investing priority, then TFSA, then taxable IMO.
Great details and comments.
MarkReply
RONALD S. TUTHILL February 15, 2024 at 6:35 pm · Edit
Hi Mark: This is a little off topic but here is your laugh for the day. It pertains to one of your stocks. It appears a company should not try to be too successful as the analysts will only knock you down. Waste Connections had solid returns and the guidance was strong but the analyst is lowering its rating because since earnings were strong and guidance is great they made more than the analyst expected and blew right past the analyst projections so they have decided to lower its rating as they are looking ahead to earnings in 2025. If I was an analyst it would make perfect sense to me but alas I’m just a poor shareholder and so don’t see the logic at all. Thoughts!
Reply
Mark February 15, 2024 at 6:52 pm · Edit
LOL. Owned $WCN for years now.
https://www.myownadvisor.ca/then-and-now-waste-connections/Analysts are funny. I’ve always said they need to put food on the table too!
Thanks for the chuckle.
MarkReply
Paul Thiessen February 15, 2024 at 3:42 pm · Edit
I hold a fairly significant percentage of my portfolio in TSX listed ETF’s that invest in the US and foreign markets (XUU,VXC,VGG, EQL and VIU). While I believe in the value of diversification, from my perspective participating in a foreign currency adds another level of risk to the the risk already inherent in the actual investment itself. It is quite possible that currency moves will eliminate (or magnify) the returns of the underlying investments.
As I am intending to spend my retirement dollars in CDN funds, to me it makes sense to not take on unnecessary extra risk and therefore have all my investments in CDN dollar denominated assets. For investors intending on actually using foreign currencies, a different strategy may make sense.
Reply
Mark February 15, 2024 at 4:42 pm · Edit
That makes a LOT of sense Paul and for many, U.S.-listed ETFs are not worth the hassle. Participating in foreign currency does complicate things, even if there are slight tax-benefits depending on asset amounts in some accounts.
All my best,
MarkReply
Bob Wen February 15, 2024 at 11:23 am · Edit
This was a very interesting read, including the reader comments. Thank you Mark.
I’ve previously considered holding some US-listed ETF’s in our RRSPs/RRIFs, but had felt it was more hassle than it’s worth – complicates rebalancing too! However, having read this post, and having more time to think these days, I’ll reassess the situation.
Reply
Mark February 15, 2024 at 12:58 pm · Edit
I hear that from a lot of readers to be honest, Bob. It’s simply not worth the headaches for U.S.-listed ETFs. Focus on your CDN $$ savings rate for investing and invest in CDN-listed ETFs as much as you wish. Rinse and repeat. That totally works (well) for many.
MarkReply
Bob Wen February 16, 2024 at 10:33 am · Edit
Hi Mark, After giving some thought to the question “Should you own Canadian-listed ETFs or U.S.-listed ETFs?”, I’ve concluded that for our situation, owning U.S.-listed ETFs is not going to provide much benefit, if anything at all. The reasons are: 1) we are in RRSP/RRIF/non-registered meltdown mode, which should be pretty much completed within seven years, and 2) although we meet the suggested dollar value in our TFSAs, the only gain is on the lower MER. Still, thanks for the post.
Reply
Mark February 17, 2024 at 8:47 am · Edit
I think that’s makes a lot of sense, Bob.
I see over and over some retirees totally ignoring U.S.-listed ETFs and they just have a basket of the following:
1. Canadian stocks (as many as they wish, some more, some less).
2. Canadian-listed ETFs that invest a world of stocks.
3. Cash or cash-alternative ETFs, GICs, Bonds, etc.They keep it very simple and successful at it.
MarkReply
Steve February 14, 2024 at 4:30 pm · Edit
Thanks for the specific details on the withholding tax and how they apply. I always forget parts of it… After reading some comments above I think I might also buy some US listed ETF’s if the Canadian dollar ever goes back to par with the US.
One side note on the topic. A while back I opened up a USD trading account along with my CAD trading account. I moved Canadian stocks that also traded on the US exchange to my USD account to get dividends paid in USD; just enough for the holiday spending.Now retired I plan to have the same setup in my TFSA so the USD dividends will be tax free.
Steve
Reply
Mark February 14, 2024 at 6:22 pm · Edit
Yes, any stocks not paying dividends inside the TFSA, would not be impacted. Smart.
I have thought about owning some USD stocks that do not pay dividends in my taxable (e.g., BRK.B) but I haven’t pulled the trigger yet. I figure I’m better off maxing out our TFSAs and RRSPs in 2024 first.
It might be a long time before our CDN <> USD goes to par. Those were the days!
All my best,
MarkReply
Steve February 14, 2024 at 6:54 pm · Edit
Actually I was referring to Canadian stock listed on the US exchange such as BCE. I assume that the dividends in USD TFSA would not have any withholding tax.
That was the plan.
Steve
Reply
Mark February 14, 2024 at 7:50 pm · Edit
Gotcha, I didn’t see that reference to BCE in your comment…
When possible, I tend to own the stock on the side the account where the dividends are paid in either CDN $$ or USD $$.
MarkReply
Graham February 14, 2024 at 2:46 pm · Edit
Years ago, I built a small US$ portfolio in my RRIF. It mostly held European stocks via US based ADRs. Things like Unilever, Shell, BP, National Grid plus a few US and Canadian stocks that paid dividends in US$ (some do, e.g Methanex, AQN). Plus one or two US & Canadian US$ preferreds. This generated US$ that I collected in US$ HISA (4.9% yield at present at BMOI!). Withdrew any US$ I had need for, annually as part of required RRIF withdrawal (They convert US$ to C$ at prevailing rate to withdrawal in C$)
We are no longer snowbirds. As a result, I have sold off most of our US$ holdings in RRIF and replaced with two US domiciled ETFs. I chose VOO for the US components and VEA for ex-US. MERs are low and being in RRIF, there is no US WHT on either. There will be a WHT on the foreign income from VEA (~0.16%). VEA is based on foreign Developed markets but does include 9.6% Canada!
This worked for me because I already had available US$. If not, I would sometimes sell one of my existing holdings on the US side. We have overly large allocation of some dual listed Canadian stocks, so trimmed one of those to fund our US$ travels 🙂 Chose a highly traded stock like a bank or BCE or similar. At BMOIL, no need to call in. Transfer happens automatically.
Up until recently, I had almost no ETFs. But adding both US and Canadian ETFs as I simplify portfolio.
Reply
Mark February 14, 2024 at 6:17 pm · Edit
Thanks, Graham.
More and more, I’m hearing of folks doing this: more ETFs (not always broad-market indexed ETFs) to buy and hold in their RRSPs/RRIFs.
Yes, there could be two levels of tax for ETFs in fact, for U.S.-ETFs that hold international assets too but that’s an entirely other post and set of details far beyond today’s reader question.
A good summary and more details from BlackRock here:
https://www.blackrock.com/ca/individual/en/literature/brochure/withholding-tax-reference-guide-en-ca.pdfCurious…are you withdrawing $$ in USD for spending in USD for travel?
Happy travels!
MarkReply
BW February 13, 2024 at 10:52 pm · Edit
I was under the impression US witholding tax only applies if a dividend is paid. If a US stock or ETF paid no dividends and was held within a TFSA or outside a registered account, shouldn’t it be fine?
Reply
Mark February 14, 2024 at 7:06 am · Edit
Thanks, BW. Yes, FWT will apply only if the ETF even pays a distribution. Kinda like no taxation on a stock in a taxable account if the stock doesn’t pay a dividend.
Thanks for reading!
MarkReply
DaveG February 13, 2024 at 1:07 pm · Edit
If part of your retirement goal is to spend a portion of winter in the southern US, you might want to bite the bullet and convert some RRSP money into USD earlier than later. I was fortunate enough to do that back in 2008 when the exchange rate was at par. And now, 15 years later we’re enjoying spending our first full winter on Hilton Head Island. Winterlude or not, we don’t miss winter in Ottawa!
Reply
Mark February 13, 2024 at 1:59 pm · Edit
Great point, Dave. I do hear of some DIYers going that…thinking ahead for sure.
Hilton Head, sweet. 🙂 Would love to play golf there someday!
Have a great winter in warmer weather!
MarkReply
