BCE Inc. has a plus-size dividend yield of 6.4 per cent these days, which puts it squarely in the sights of investors seeking tax-efficient investment income.
One such investor has a question: If he bought BCE shares on the New York Stock Exchange, would his dividends be subject to the usual 15-per-cent withholding tax applied when U.S. companies pay dividends to Canadian investors outside a registered retirement savings plan or registered retirement income fund?
Recently, I wrote a summary on taxation of dividends in registered and non-registered accounts. This reader asked for additional info about Canadian companies listed on U.S. exchanges and U.S. dividend-payers listed on the TSX. For answers, I consulted Wilmot George, a certified financial planner (CFP) and vice-president of tax, retirement and estate planning at CI Investments Inc.
Mr. George said under the Canada-U.S. tax treaty, U.S. withholding taxes would not normally apply if an investor buys shares of a Canadian company on the NYSE instead of the TSX. Would those dividends be considered eligible dividends as specified under the rules for the dividend tax credit?
“Taxable dividends from Canadian-resident corporations (regardless of exchange) are normally considered Canadian dividends,” Mr. George said in an e-mail. “Eligible dividend status (as opposed to non-eligible) is possible if the corporation declares and designates the dividend as such.” Note: Non-eligible dividends are generally paid by small businesses and get a different treatment than eligible dividends (generally paid by corporations) under the dividend tax credit.
This same reader also asked about Algonquin Power & Utilities Corp., which has a dividend yield of just less than 4 per cent and makes its quarterly cash payouts to investors in U.S. dollars. “Do I lose my preferred dividend treatment with respect to Canadian income tax because the payments are in U.S. dollars?” he asked.
Mr. George said the answer is no. U.S.-dollar dividends paid by a Canadian company listed on the TSX are considered Canadian dividends.
Finally, this reader asked whether dividends paid by U.S. companies listed on the TSX would qualify for preferential tax treatment. Mr. George said dividends from U.S.-resident corporations would normally be considered foreign dividends not eligible for the dividend tax credit.
As for converting those U.S.-dollar dividends paid by Canadian companies into Canadian dollars for reporting purposes, tax guidance provided by CI suggests using the conversion rate on the day the dividend is received.
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