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Last week's column about the tax and currency implications of investing in U.S. stocks – the third in a series – prompted a flood of questions from readers. You can read the column here.

As you'll see, Investor Clinic readers ask some tough questions. So I invited Dorothy Kelt, a retired accountant and founder of, to answer some of them.

If you're looking for more information on any of the following topics, you can use the search box at the top of's website.

1. Your article stated that dividends from U.S. stocks held in a registered retirement savings plan (RRSP), registered retirement income fund (RRIF) or locked-in retirement account (LIRA) are exempt from the 15-per-cent U.S. withholding tax. Is the same true of a life income fund (LIF)?

Yes, this also is true for a LIF or a locked-in retirement income fund (LRIF) because they are also considered "retirement" accounts, which are exempt from withholding tax as per the tax treaty between Canada and the United States. However, tax-free savings accounts (TFSAs), registered disability savings plans (RDSPs) and registered education savings plans (RESPs) are not considered retirement accounts and are therefore subject to U.S. withholding tax.

2. What about dividends from a U.S.-listed or Canadian-listed exchange-traded fund that invests in U.S. stocks? Are such ETFs also exempt from U.S. withholding tax if the ETF is held in an RRSP, RRIF or LIRA?

Dividends from U.S.-listed ETFs that invest in U.S. stocks will be exempt from withholding tax if the ETF is held in a registered retirement account. However, Canadian-listed ETFs or mutual funds that invest in U.S. stocks (either directly or through a U.S.-listed ETF) are not exempt, even if they are held in a retirement account, and distributions will be reduced by any foreign income tax withheld. The withholding tax cannot be recovered in such cases. If the ETF or mutual fund is held in a non-registered account, on the other hand, a T3 (statement of trust income) would be received indicating the amount of the tax withheld and one could claim a foreign tax credit to offset other Canadian taxes owing. (Note: PWL Capital has an excellent paper on ETFs and foreign withholding taxes, available at

3. If U.S. withholding tax is deducted from a U.S. dividend in my non-registered account, will my tax slip indicate the amount of the foreign tax credit that I can claim? Will it break out the amount of U.S. tax withheld? I am not clear on how I would determine the amount to claim or how I would go about claiming it.

Your T3 or T5 (statement of investment income) will show the amount of foreign tax paid. If the amount shown is in U.S. dollars, it must then be converted to Canadian dollars for your tax return. This amount will be used to calculate your foreign tax credit on forms T2209 (federal) and T2236 (provincial). The tax credit is normally less than the foreign tax paid. For T5s, any amount not recovered by the foreign tax credit can be deducted on line 232 of your tax return.

4. When I buy a U.S. security, my broker takes Canadian funds from my account and converts them to U.S. dollars. The exchange rate the broker uses is different (and less favourable to me, of course!) than the Bank of Canada noon rate. Which exchange rate do I use when calculating my cost in Canadian dollars for tax purposes?

If the Canadian funds were used to directly pay for the U.S. purchase, you should use the broker's exchange rate. This is the rate you paid and it therefore determines your actual cost in Canadian dollars.

5. I have about $30,000 (Canadian) cash in my RRIF doing nothing. I also have about $15,000 (U.S) in equities in a non-registered account. Can I transfer tax-free the U.S. equities into my RRIF in exchange for the valuation on any given day?

No, your brokerage should not allow this "swap transaction," as this type of transaction has not been allowed for RRIFs since 2011. You would have to sell the U.S. equities in your non-registered account and repurchase them in your RRIF. Any gain would be taxable. If the U.S. equities are in a loss position, you would have to wait at least 30 days to repurchase the shares or the loss would be a "superficial loss" and cannot be used to offset other capital gains.

6. My wife and I want to buy more U.S. stocks but we'd rather buy them in our RRSPs because of the tax advantages. The problem is that we don't have any more room in our RRSPs. I'm thinking that we should sell some Canadian stocks in our RRSPs, freeing up room to purchase U.S. stocks. We'd then repurchase the same Canadian stocks in a holding company that we use to make investments. Does this approach make sense?

Yes, this approach does make sense, but the question of whether to use a holding company depends on each person's situation, and would be best left to a professional tax adviser with experience in this area. It's usually best to hold Canadian stocks in a non-registered account in order to take advantage of the dividend tax credit, which is not available to a holding company.