parvus wrote:It could be that I'm just a blockhead on this issue (which wouldn't surprise me at all). Are you saying that U.S.-listed international ETFs pay higher (nominal) yields? Or are you saying that they have higher (tax-)effective yields? I would grant the first point, but not the second.
All the quote you responded to said was 3% is more than 2% and therefore benefits more from RRSP sheltering.
Unless the U.S. international ETF invests in tax-favourable ADRs -- some are, some aren't -- then the tax advantages cannot be passed on to Canadian investors.
Indeed but the fact they pay lower tax rates translates into a cost advantage for us. There is less lost foreign withholding.
Canadian listed international ETFs aren't subject to US withholding but they come with higher MERs and international tax withholding when compared to their US listed counterparts.
What might these foreign taxes be? I'm curious. Is it the result of tax treaties or something else? (The normal U.S. withholding rate is 15%, but it could be 30% for non-U.S. equities.)
Principally dividend withholding by foreign countries I assume. I figure it's based on lower negociated rates(likely going both ways) vs our agreements with said countries. I have no knowledge here(nor do I care too much), I'm simply comparing the tax rates products on each side of the border have paid in the last few years. Bender and Bortolotti later did more robust calculations in this
white paper. They mostly used Ishares funds for their examples while my posts here usually focus on VG ETFs since that's what I(and many here) own.
The same could equally apply to a U.S.-listed international ETF: currency trade-offs for better tracking error. But, so far as I've read, there is no tax advantage here. The U.S. -International tax treaty on withholding is not commutative, which is to say that Canadian investors in U.S.-based international ETFs don't enjoy the same potential tax recovery/exemption advantages that U.S. investors do.
As stated numerous times before,
this is all correct and no one has stated otherwise. Yet again, the lower tax rates paid by US listed ETFs means there is less tax loss there vs higher paying Canadian funds in RRSPs.
Thanks for the links and for the exercise of revisiting this issue now that better directly held Canadian options exist. I hadn't realized that for investors who aren't comfortable with swap based ETFs, have no US$ income and are using ZEA for international exposure, the US vs international decision in RRSPs is a wash. For the rest of us(including the OP), international should still be prioritized in the RSSP.
Edit: Another thing this exercise helped me realize(or rediscover) is that since the April 30th
lowering of fees by BMO, ZEA is now a better option for EAFE exposure in taxable than all US listed ETFs. At .23% all in cost, no US ETF could ever really beat it unless dividend yields or foreign tax withholding levels drop significantly since on their own, they account for at least a .2% anchor. At its previous .34% MER a few US listed options were ever so slightly cheaper.