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An American dollar bill and Canadian coins including a loonie are seen on Thursday, Nov.8 2007 in Quebec City.

JACQUES BOISSINOT/The Canadian Press

Dear Nancy Woods,

I just read your February 2015 article in the Globe and Mail with some interest. I purchased some U.S. stocks in 2012 when the Canadian dollar was at par or better than the U.S. dollar. These stocks were held in an RRSP account. I decided to sell the U.S. stocks and then convert the U.S. cash to Canadian dollars, all under the RRSP account. I exchanged at a currency rate of 1.3976. Will I pay tax on the money I made from the currency conversion? What about the dividend income I earned on the U.S. stocks? Will that sit untaxed until I convert to a RIF hopefully at a lower tax bracket some time in the future?

Susan

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Hi Susan,

Any transactions you do, including the currency exchange that happens inside a registered plan be it an RSP, RIF or TFSA, is exempt from tax. The dividend income paid from a U.S.-based company is exempt from non-residency tax if held inside an RSP or a RIF. It is not exempt if you own the stock in a TFSA account. Canada has a tax treaty with the U.S. that excludes any dividend from an U.S.-based company from non-residency tax paid into an account meant for retirement purposes. That is why the TFSA is not included. It is not specifically meant to be used only as a source of funds during one's retirement. It is important that for non-registered accounts that Canadian residents sign a W8-BEN declaring that they are a resident of Canada. Filing this U.S. form reduces the non-residency tax from 25 per cent normally charged to 15 per cent.

Once you convert your RSP to a RIF, there isn't any tax implications. It simply is a change of retirement account that once "RIF'd" requires you to take out a minimum amount each year. With the RSP, there is not a mandatory withdrawal amount.

I hope this information helps.

Nancy

Nancy Woods is an associate portfolio manager and investment adviser with RBC Dominion Securities Inc. Visit her website www.nancywoods.com or send an email request to asknancy@rbc.com. You can also send your questions to asknancy@rbc.com.

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