I’m following up on recent questions about taxation of the ETF VEQT (and similar) in an RRSP.
I am a bit confused about what withholding taxes might apply to VEQT. I have three questions please.
1) Would you be so kind at to explain what withholding taxes apply to VEQT in an RRSP?
2) If there are non-recoverable withholding taxes on VEQT in an RRSP, can they be quantified?
3) Finally, if there are withholding taxes applicable to VEQT in an RRSP, is there an ETF setup with the same diversification objective as VEQT that is more tax efficient in an RRSP?
(I tried following this information but I’m still unclear: https://www.vanguard.ca/content/dam/intl/americas/canada/en/documents/WithholdingTax_Guide-final.pdf).
Thank you very much.
Michael
Page 2 of this document is the best source we can reference. The issue stems from when a Canadian listed ETF owns a US listed ETF. Level I withholding taxes would apply in this instance, even in an RRSP account. VEQT owns Canadian-listed ETFs that own US stocks. According to Blackrock, "All Canadian-listed ETFs or mutual funds seeking exposure to equities south of the border are subject to the same level of withholding tax regardless of whether the ETF invests directly in US stocks, or indirectly via a US or another Canadian ETF,” says BlackRock. “This withholding tax will apply regardless of whether the investor holds the Canadian ETF product in a taxable or non-taxable account.” However, “Canadian and US-listed ETFs held in a taxable account are generally eligible for tax credits that can reduce the effect of withholding tax paid.”. The best way to avoid this is to own a US-listed ETF that owns shares directly. However we do not have a lot of replacements for VEQT as it is rare to have a US listed ETF with significant Canada exposure as well (VEQT is 30% Canada).