What happens when you sell US stocks in Canada?

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Short Answer

When you sell US shares in Canada, you incur capital gains tax. Read more to know terms, conditions and exemptions when you sell US stocks in Canada.

Detailed Answer

Canadians Investing in the US Markets

The Canadian trading experts trade and invest in the US stock markets to take advantage of foreign exchange conversions and diversification. Reports state that between 2010 and 2020 the American index – S&P 500 skyrocketed by 176%, whereas the Canadian stock market index – S&P/TSX grew only by 23%. The investors will definitely want to take advantage of investing in such a robust environment.

Many Canadian trading platforms such as Wealthsimple, Questrade, Interactive brokers, etc. offer US stocks and ETFs in their investment options platter, making it a cake walk for the Canadians to invest and trade in such assets.

What happens when you sell US stocks in Canada?

When you sell any share, there are chances you incur a capital gain or a loss. When you enjoy gains, you come under tax scrutiny.

The Canadian citizens are not just limited to paying taxes on the assets held within Canada, but they are also expected to disclose and pay taxes on any income returns or capital gains earned from the assets of another country in a particular assessment year.

The good news is that the Canadian citizens will not be assessed under the US tax laws for the capital gains they reap. They are required to include 50% of the capital gain earned to their total assessable income. In addition to this, they are also supposed to add any gains they reap, while making foreign currency conversions.

Having stated the above, there are always exemptions. There are some circumstances where the Capital Gains of Canadians come under the US tax radar and they are as follows:

  • If the Canadian investor has more than 5% interest in the company he has invested in, and
  • If the company in question is a US real estate or a mining company.
  • What if I sell my US stocks that are held in a TFSA?
  • TFSA is an abbreviation for Tax-Free Savings Account. As the name goes by, the income returns and capital gains earned within this account is tax-free. It applies to the US shares, ETFs or bonds held within the account as well. They do not incur any tax on capital gains, dividends or interest income.

Who does this Tax treatment apply to?

This applies only when Canadian citizens, residing in Canada, trade or invest in a US share or bond.

This DOES NOT apply to:

  • US citizen residing in Canada
  • Canadian citizens residing in the US.

Canadians investing, buying and selling US stocks

The Canadian stock market is only a tiny portion of the world market. So, the Canadian investors turn to their southern counterpart for diversifying their portfolio. However, any cross-border taxation rules are generally complicated and vary from person to person. Hence, it is vital that you consult your tax adviser for better planning and reporting.

Tagged With: canadians selling us stockssell us shares in canadacapital gains taxtax implicationspay taxsell shares in tfsaus stocks
Categories: Stock Market
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