Bought U.S. stock through CAD TFSA at TDDI
Bought U.S. stock through CAD TFSA at TDDI
Hi,
Excuse my ignorance, but I wanted to buy a U.S. stock today in my U.S. TFSA at TDDI. However, I did not have any U.S.$ in my U.S. TFSA account. Therefore, I bought the U.S. stock through my CAD TFSA in CAD$. The U.S. stock now resides in my CAD TFSA. I thought TDDI would have moved the U.S. stock over to my U.S. TFSA since it is in U.S.$
1. Does it make a difference if it's in my CAD TFSA or U.S. TFSA?
2. Was it stupid to buy the U.S. stock through my CAD TFSA, rather than converting my CAD $ to U.S.$ in the TFSA, and then buying the U.S. stock through my U.S. TFSA?
Excuse my ignorance, but I wanted to buy a U.S. stock today in my U.S. TFSA at TDDI. However, I did not have any U.S.$ in my U.S. TFSA account. Therefore, I bought the U.S. stock through my CAD TFSA in CAD$. The U.S. stock now resides in my CAD TFSA. I thought TDDI would have moved the U.S. stock over to my U.S. TFSA since it is in U.S.$
1. Does it make a difference if it's in my CAD TFSA or U.S. TFSA?
2. Was it stupid to buy the U.S. stock through my CAD TFSA, rather than converting my CAD $ to U.S.$ in the TFSA, and then buying the U.S. stock through my U.S. TFSA?
Re: Bought U.S. stock through CAD TFSA at TDDI
I haven't done this myself since they brought in the dual system. However, here are my thoughts:
1 - If it doesn't pay dividends it doesn't matter. If TDDI cares, they'll move it over themselves. But to you, no difference. If it pays dividends, those will be paid in USD which will be converted to CAD if you keep it in the CAD side of the account. On each dividend payment you'll be charged 2-ish percent FX fees. So better to keep it in the US side to avoid those.
2 - If you had just transferred the money over, it's the same end result. If you used Norbert's Gambit, then depending on the amount of money we're talking about, you could have saved money.
1 - If it doesn't pay dividends it doesn't matter. If TDDI cares, they'll move it over themselves. But to you, no difference. If it pays dividends, those will be paid in USD which will be converted to CAD if you keep it in the CAD side of the account. On each dividend payment you'll be charged 2-ish percent FX fees. So better to keep it in the US side to avoid those.
2 - If you had just transferred the money over, it's the same end result. If you used Norbert's Gambit, then depending on the amount of money we're talking about, you could have saved money.
Re: Bought U.S. stock through CAD TFSA at TDDI
TDDI won't move the stock over. You have to call and ask.
Note, you will lose 15% to US withholding taxes if the stock pays a dividend. 30% if you didn't file W-8BEN form.
Because it's a TFSA, you can't claim US withholding taxes on your Canadian tax return; they are lost forever. An RRSP or a taxable account is a better place to own US dividend payers. RRSPs are exempt from US withholding taxes. Taxable accounts are not exempt, but you can claim US taxes on your Canadian tax return.
Note, you will lose 15% to US withholding taxes if the stock pays a dividend. 30% if you didn't file W-8BEN form.
Because it's a TFSA, you can't claim US withholding taxes on your Canadian tax return; they are lost forever. An RRSP or a taxable account is a better place to own US dividend payers. RRSPs are exempt from US withholding taxes. Taxable accounts are not exempt, but you can claim US taxes on your Canadian tax return.
Re: Bought U.S. stock through CAD TFSA at TDDI
Thanks Spudd and ig17. I learn something new every time on this forum.
Re: Bought U.S. stock through CAD TFSA at TDDI
To further clarify what Spudd wrote about hidden exchange costs...
Let's say that you contributed $5,500 CAD in new money. You immediately used it to buy a US stock in your CAD account. The last time I checked -- a few years ago -- TDDI hidden exchange fee was about 1.75%.
Your currency exchange cost:
$5,500 * 1.75% = $96.25
You can do the same exchange via Norbert's Gambit for the cost of two trading commissions and a small slippage due to bid/ask spread. Say, $30 all-in. So, a potential saving of $66.
The catch is, the gambit takes a couple of days to execute in a TFSA. The stock you want to buy can easily move against you (up!) while you wait to complete the gambit. You may end up not saving anything.
Let's say that you contributed $5,500 CAD in new money. You immediately used it to buy a US stock in your CAD account. The last time I checked -- a few years ago -- TDDI hidden exchange fee was about 1.75%.
Your currency exchange cost:
$5,500 * 1.75% = $96.25
You can do the same exchange via Norbert's Gambit for the cost of two trading commissions and a small slippage due to bid/ask spread. Say, $30 all-in. So, a potential saving of $66.
The catch is, the gambit takes a couple of days to execute in a TFSA. The stock you want to buy can easily move against you (up!) while you wait to complete the gambit. You may end up not saving anything.
Re: Bought U.S. stock through CAD TFSA at TDDI
If you already hold a dual-listed stock in your TFSA (or RSP), you can perform the gambit without any waiting time, just sell on one side of the account and re-buy on the other. You will probably need to call in to journal the shares to the correct side before or after the gambit; TD seems to process those same-account journal requests quickly.
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Re: Bought U.S. stock through CAD TFSA at TDDI
Just wondering out loud, would a canadian based mutual fun holding foreign stocks at this point still have the dividend withholding tax. I thought the braintrust here might keep me from going down the rabbit hole of various others sites.....cool thanks
Re: Bought U.S. stock through CAD TFSA at TDDI
I think we are saying the same thing.jeremy wrote: ↑05 Jan 2018 12:34If you already hold a dual-listed stock in your TFSA (or RSP), you can perform the gambit without any waiting time, just sell on one side of the account and re-buy on the other. You will probably need to call in to journal the shares to the correct side before or after the gambit; TD seems to process those same-account journal requests quickly.
Case 1: you don't own a dual-listed stock
You have to buy a stock on the CAD side, wait two days for the trade to settle, request a journal on T+2, then sell the stock on the USD side.
Case 2: you hold a dual-listed stock already
You don't have to wait two days. You may be able to journal and sell on the same day, if they process your journal request quickly. Better to call early in the day if you really want to sell on that day.
You have to request the journal *before* you sell on the other side. You can't sell before you journal. I tried to sell a dual-listed stock in my USD TFSA and I got an error:
Your account does not hold a sufficient quantity of this security. Please check Order Status to verify that you don't already have an open sell order on this security. [ 41198 ]
The system is not aware that I own the same stock on the CAD side.
Re: Bought U.S. stock through CAD TFSA at TDDI
Yes, I think we are--I was a bit vague in my previous post. I agree that the interlisted stock needs to be in the correct side of the account to sell before executing the gambit. In the case where the stock is already held on that side, the journal would need to be done a few days after the gambit. Otherwise the journal would have to be done before. The last time I called TD to request a journal between different sides of the same account, it was completed before the end of the call, YMMV.
Re: Bought U.S. stock through CAD TFSA at TDDI
Yes, they’d pay the FWT and it would not be recoverable since it’s in a TFSA. Lately Canadian listed ETFs holding EAFE equities are paying less level 1 FWT than use to be the case(no idea why), pretty much in line with US listed EAFE ETFs(avoid like the plague in TFSA due to 2 levels of FWT). For MF/ETF holding US stocks then it’s the same 15% lost FWT no matter how it’s held in a TFSA.Profit not Prophet wrote: ↑05 Jan 2018 12:48 Just wondering out loud, would a canadian based mutual fun holding foreign stocks at this point still have the dividend withholding tax.
Re: Bought U.S. stock through CAD TFSA at TDDI
You're not better off holding US equities in taxable. You're much better off paying a 15% tax to the US on the dividends than you are paying your marginal rate to Canada unless you are in a very low tax bracket (and if you are, where on earth did you get the money to fool around buying individual US equities?). On top of that, your capital gains in the TFSA will be tax-free.
Now, the RRSP is a superior vehicle because you do save the US withholding taxes.
Re: Bought U.S. stock through CAD TFSA at TDDI
You are right.Rysto wrote: ↑07 Jan 2018 15:34 You're not better off holding US equities in taxable. You're much better off paying a 15% tax to the US on the dividends than you are paying your marginal rate to Canada unless you are in a very low tax bracket (and if you are, where on earth did you get the money to fool around buying individual US equities?).
Although, just to be nitpicky, I can write up an example where it makes sense to hold US equities in taxable. I admit this is an edge case. I was just curious if I can find any counter-example.
You live in Ontario.
You are in the second highest tax bracket.
https://www.taxtips.ca/taxrates/on.htm
You have $100K CAD to invest.
You split $100K half and half between Canadian and US equities.
Both halves yield 2%.
You have $50K room in the TFSA.
Option 1: hold Canadian equities in the TFSA; hold US equties in taxable
2017/2018 dividend taxes:
Canadian equities: $0
US equities: $1000 * 51.97% MTR on ordinary income = $519.70
Total: $519.70
Option 2: hold US equities in the TFSA; hold Canadian equities in taxable
2017/2018 dividend taxes:
Canadian equities: $1000 * 37.19% MTR on eligible dividends: $371.90
US equities: $1000 * 15% withholding tax: $150
Total: $521.90
Option 1 saves $2 in taxes per $1000 in dividends. Ditto in the highest tax bracket.
Yes, but this is a moot point if we are comparing US equities to Canadian equities or International equities. Whatever you decide to shelter in the TFSA, your capital gains will be tax-free. This is not a factor that can tip the choice one way or the other.
Re: Bought U.S. stock through CAD TFSA at TDDI
There are lots of cases in high income, high tax provinces once you factor in actual dividend yields.Bender| Asset Location Across Canada: Some Rules Are Made To Be Broken.I can write up an example where it makes sense to hold US equities in taxable. I admit this is an edge case. I was just curious if I can find any counter-example.
I don’t expect to ever face this decision, nothing but EAFE in TFSA.
Re: Bought U.S. stock through CAD TFSA at TDDI
I just mistakenly did something similar... I bought a TSX listed stock in my TD USD account. I suppose I need to wait until the trade settles before I can ask them to journal the shares?
The shares are listed in the over the counter market in the US but I can't sell them online. Either way it looks like I'll have to call in, which is a pain these days
The shares are listed in the over the counter market in the US but I can't sell them online. Either way it looks like I'll have to call in, which is a pain these days