Skip to main content
The Globe and Mail
Support Quality Journalism
The Globe and Mail
First Access to Latest
Investment News
Collection of curated
e-books and guides
Inform your decisions via
Globe Investor Tools
Just$1.99
per week
for first 24 weeks

Enjoy unlimited digital access
Enjoy Unlimited Digital Access
Get full access to globeandmail.com
Just $1.99 per week for the first 24 weeks
Just $1.99 per week for the first 24 weeks
var select={root:".js-sub-pencil",control:".js-sub-pencil-control",open:"o-sub-pencil--open",closed:"o-sub-pencil--closed"},dom={},allowExpand=!0;function pencilInit(o){var e=arguments.length>1&&void 0!==arguments[1]&&arguments[1];select.root=o,dom.root=document.querySelector(select.root),dom.root&&(dom.control=document.querySelector(select.control),dom.control.addEventListener("click",onToggleClicked),setPanelState(e),window.addEventListener("scroll",onWindowScroll),dom.root.removeAttribute("hidden"))}function isPanelOpen(){return dom.root.classList.contains(select.open)}function setPanelState(o){dom.root.classList[o?"add":"remove"](select.open),dom.root.classList[o?"remove":"add"](select.closed),dom.control.setAttribute("aria-expanded",o)}function onToggleClicked(){var l=!isPanelOpen();setPanelState(l)}function onWindowScroll(){window.requestAnimationFrame(function() {var l=isPanelOpen(),n=0===(document.body.scrollTop||document.documentElement.scrollTop);n||l||!allowExpand?n&&l&&(allowExpand=!0,setPanelState(!1)):(allowExpand=!1,setPanelState(!0))});}pencilInit(".js-sub-pencil",!1); // via darwin-bg var slideIndex = 0; carousel(); function carousel() { var i; var x = document.getElementsByClassName("subs_valueprop"); for (i = 0; i < x.length; i++) { x[i].style.display = "none"; } slideIndex++; if (slideIndex> x.length) { slideIndex = 1; } x[slideIndex - 1].style.display = "block"; setTimeout(carousel, 2500); }

"Do you know the only thing that gives me pleasure? It's to see my dividends coming in."

- John D. Rockefeller

Dividends may be a source of pleasure, but figuring out the taxes on them can be a pain, judging from some of the reader e-mails we receive at Investor Clinic.

Story continues below advertisement

That's especially true when the dividends are received from U.S. companies. So today, we've brought in a tax expert to help clear up some of the confusion.

Let's get straight to your questions.

A withholding tax of 15 per cent is being applied to dividends payable on U.S. equities in my tax-free savings account. Are the taxes recoverable? - B.L.

Unfortunately, the answer is no, says Brian Quinlan, partner at Campbell Lawless chartered accountants in Toronto.

The 15-per-cent U.S. withholding tax also applies to U.S. dividends received inside a registered education savings plan, he says. That's because TFSAs and RESPs don't qualify as retirement or pension vehicles under the Canada-U.S. tax treaty.

"If you hold U.S. dividend stocks inside a TFSA or RESP, you're kind of out of luck. So the plan would be not to do that," Mr. Quinlan says.



Investor Education: TFSAs

  • TFSA or RRSP: How to choose?
  • Careful, that TFSA can be such a tease
  • Note to Flaherty: TFSAs are good but they can be so much better
  • Using a TFSA can help get retirement plans on track
  • The right way to use a Tax Free Savings Account
  • Learning from TFSA's rule book


When U.S. dividend stocks are held inside a registered retirement savings plan or registered retirement income fund, on the other hand, there is no withholding tax on U.S. dividends. So the entire amount will land in your account (adjusted for currency). That's why many investors prefer to hold U.S. dividend stocks inside an RRSP or RRIF.

Story continues below advertisement

Things are a bit more complicated if you hold U.S. dividend stocks in a non-registered account. You'll pay the 15-per-cent U.S. withholding tax off the top. And because U.S. dividends don't qualify for the Canadian dividend tax credit, you'll pay tax at your marginal rate on the full amount of the dividend.

But the 15-per-cent withholding tax would qualify for a foreign tax credit on your Canadian return. So, for most investors, the net result is that U.S. dividends held in a non-registered account will be taxed at the same rate as interest income.

I need your help understanding how the special dividend declared by Sears Canada will work. On the ex-dividend date, the price of Sears will be reduced by about $3.50 a share. Assuming I sold the shares for less than I paid for them, this would appear to be a capital loss, even though I will still come out ahead, including the dividend. How would I report this when I file my income tax next year? - J.C.

The $3.50 special cash dividend is payable to shareholders of record as of May 31, so the last date an investor can buy the shares and still receive the dividend is May 26 (three business days before the record date). The stock will begin trading "ex-dividend" on May 27, when the price is expected to fall by roughly the amount of the dividend.

Cat:e528746c-3414-401a-b14b-50247e3bdf01Forum:d0fa4e14-88d2-41f9-8a19-896bdff9544b

To answer your question, if you sell the stock for less than you paid, this would indeed give rise to a capital loss, which you would report on your income tax return, Mr. Quinlan says. If you can't use the loss in 2010, the capital loss can be carried back up to three years or carried forward indefinitely to offset capital gains.

Story continues below advertisement

Separately, you would also report the $3.50-a-share dividend on your tax return. Because the dividend qualifies for the Canadian dividend tax credit, you will likely be paying far less tax on the amount than you would if it were interest income.

Your confusion seems to arise from the fact that, including the dividend, you will have made money on your Sears Canada purchase. While that may be true, the capital and dividend portions of your investment are treated separately for tax purposes, so it's possible for an investor to report a capital loss while still making a positive total return - including dividends - on an investment.



Watch Investor Clinic videos:

  • Why I love dividend growth stocks
  • The right way to approach tax-loss selling
  • What's an MER?
  • ETFs: What could go wrong
  • How to pay less tax
  • Dividend stocks, your friend
  • Why dividend ETFs will make you richer
  • The right way to approach tax-loss selling
  • Coping with volatility
  • Dividend dates explained
  • GIC rates: Creeping higher
  • Joy of dividends
  • Fund fees hurting?


Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies