Investing in Canada

Canada is considered to be a safe haven for investing for its substantial natural resources, solid monetary policy, stable political environment and a justifiable deficit in its budget. In addition, Canada has a robust banking sector with its powerful big 5 banks. Hence, the Americans choose to invest in Canadian stocks to diversify their portfolio.

Do US citizens pay taxes on Canadian stocks?

Anybody who is looking to construct an international portfolio analyze the tax implications and tax treaties between their country and the investing country.

Capital Gains Tax Implications

When you sell your investment that has grown in value from the time of investment, you incur a capital gains tax.

Americans have a choice to invest in Canadian shares that are commonly listed both in TSX & NYSE. In this case, they prefer to invest the Canadian shares in US dollars and the tax implication of this is as simple as selling a US share.

When the Americans choose to invest or trade in Canadian shares that are listed only in the TSX, then they have to purchase and sell it in CAD.

In this scenario, the capital gains tax is calculated as follows:

• Find out the purchase price of the share in Canadian Dollars

• Convert the purchase price from CAD to USD, based on the exchange rate on the time of purchase

• Find out the sale price of the share in Canadian Dollars

• Convert the sale price from CAD to USD, based on the exchange rate on the time of purchase

• Capital Gains = Sale price in USD – Purchase price in USD

• Include your capital gains calculated in USD with your taxable income & pay tax as per your marginal tax rate.

Tax on Dividends received

The Canada Revenue Agency (CRA), withholds 30% of the dividends paid by any Canadian corporations to international investors. However, the US and Canada have a special tax treaty and Canada charges a reduced 15% withholding tax rate.

Exemption

If American citizens have contribution caps available in their respective retirement account, they can opt to invest the Canadian shares within the retirement account. On doing so, the dividend tax, the capital gains tax or any other tax liability is waived.

Do US citizens pay taxes on Canadian stocks?

International tax agreements and tax assessments are generally complicated in nature. The US citizens investing in Canadians stocks are no exemption to this complexity. Hence, it is always preferable to consult a tax advisor to promptly disclose your international income to pay accurate taxes and receive exemptions, if any.