This is the time of year that many people migrate to warmer climates. A majority of them go south of our border to the United States. With that comes the need to exchange our Canadian dollars into American. Currently, we need to pay approximately an extra $38 Canadian to get $100 US. That can certainly raise eyebrows because this is a higher premium than previous years. The higher conversion rate, higher gas prices, and higher food costs all contribute to people thinking twice about whether or not it is worth it to escape the cold.
With proper planning as an investor, you can receive some of your income in American currency. The simplest and most straightforward is to invest in U.S. dividend paying companies. The downside to this is the non-residency withholding tax that the dividend would be subject to if the investment is held in a non-registered account. This would also include a Tax Free Savings Account. Only if held in a retirement account like an RSP or RIF account would the obligation of the withholding tax be exempt.
There is another way.
Several Canadian company’s shares are interlisted. This means that their shares trade on the Toronto Stock Exchange and on an American exchange like the New York Stock Exchange. As few examples of this are the shares of the Canadian banks, BCE, CN Rail, and Rogers. If you buy or hold these shares in the U.S. side of your Canadian investment account, you will be paid the dividend in U.S. dollars. You will still be taxed as if it was in Canadian dollars. The exchange rate used would be either the rate on the date the dividend was received or the average exchange rate for the year.
The benefit is that the dividends would still be eligible for the dividend tax credit and no foreign withholding tax.
Finally, you can move existing shares from the Canadian side of an account into the U.S. side of an account providing that your brokerage firm offers such an option. When you move shares it is not treated as a disposition because you are still the owner. Therefore the Adjusted Cost Base or ACB of the shares does not change. When you sell the shares you will still have to declare the proceeds in Canadian dollars even if you received them in U.S. dollars.
Bottom line is, with some planning, you can save a little bit of the exchange rate and get U.S. dollar income from Canadian companies.
Find the list of interlisted companies here.
Nancy Woods is Portfolio Manager and Senior Investment Adviser with RBC Dominion Securities Inc. Visit her blog, “Nancy’s Notes” at nancywoods.com or send her your question to asknancy@rbc.com
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.
Nancy Woods