Your Complete Guide to Index Investing with Dan Bortolotti

Foreign Withholding Tax: Which Fund Goes Where?

2017-12-02T23:31:13+00:00 September 20th, 2012|Categories: Dividends, ETFs, Index funds, Taxes|Tags: , |158 Comments

My previous post on foreign withholding taxes included a lot of information for investors to puzzle over. But unless you’re an accountant, you probably don’t care too deeply about the finer details. Most investors just want to answer a simple question: which fund should I put in which account?

Recall from the earlier post that there are five broad categories of funds you can use for US and international equities:

A. Canadian mutual fund or ETF that holds US or international stocks directly.
B. US-listed ETF that holds US stocks.
C. US-listed ETF that holds international stocks.
D. Canadian ETF that holds a US-listed ETF of US stocks.
E. Canadian ETF that holds a US-listed ETF of international stocks.

To help you make the most tax-efficient choice for each type of account, see the tables below. I’ve specified which of the above fund categories are the most tax-efficient, and which ones carry the largest withholding tax burden. Then I’ve included some comparisons of specific funds. In each case, the pairs track the same index and use the same currency hedging strategy. Once again, a big thanks to Justin Bender at PWL Capital for helping me sort through these details.

An important note before you make your decision: foreign withholding taxes are just one of many costs of investing, so they should not be the only factor in your fund choices. Management expense ratios are just as important: it makes no sense to pay an extra 0.50% in MER to save 0.30% in withholding taxes. Similarly, a US-listed ETF may be more tax-efficient than a Canadian one, but your overall cost will still be higher if you’re paying 1.5% in currency exchange fees. Make sure you’ve thought this through before making any changes to your portfolio.

Even more important, you need to consider your income tax situation when deciding where to hold your fund. While holding foreign equities in a non-registered account (as opposed to an RRSP) allows you to claim the foreign tax credit, the dividends are taxed at your full marginal rate, and any capital gains are also taxable. In an RRSP, these taxes can be deferred until retirement. Justin illustrates this idea with a dramatic example on his blog.

US Equities

For non-registered accounts choose A, B or D.

TD U.S. Index (TDB902) is equal to iShares S&P 500 (IVV)
TD U.S. Index Currency Neutral (TDB904) is equal to Vanguard S&P 500 Hedged to CAD (VSP)
Vanguard Total Stock Market (VTI) is equal to Vanguard US Total Market (VUN)
BMO S&P 500 (ZSP) is equal to Vanguard S&P 500 (VFV)
iShares US Fundamental
is equal to PowerShares FTSE RAFI 1000 (PRF)


For RRSPs choose B. Avoid A and D.

iShares S&P 500 (IVV) is more tax-efficient than TD U.S. Index (TDB902)
Vanguard S&P 500 Hedged to CAD (VSP) is equal to TD U.S. Index Currency Neutral (TDB904)
Vanguard Total Stock Market (VTI) is more tax-efficient than Vanguard US Total Market (VUN)
BMO S&P 500 (ZSP) is equal to Vanguard S&P 500 (VFV)
PowerShares FTSE RAFI 1000 (PRF) is more tax-efficient than iShares US Fundamental

International equities

For non-registered accounts choose A. Avoid C and E.

TD International Index (TDB911) is more tax-efficient than
Vanguard FTSE Developed Markets (VEA)
TD International Index Currency Neutral (TDB905) is more tax-efficient than
iShares MSCI EAFE CAD-Hedged (XIN)
iShares International Fundamental (CIE) is more tax-efficient than
 PowerShares FTSE RAFI Developed Mrkts ex-U.S. (PXF)
Vanguard FTSE Emerging Markets (VWO) is equal to  Vanguard FTSE Emerging Markets (VEE)


For RRSPs choose A or C. Avoid E.

 TD International Index (TDB911) is equal to Vanguard FTSE Developed Markets (VEA)
 TD International Index Currency Neutral (TDB905) is more tax-efficient than
iShares MSCI EAFE CAD-Hedged (XIN)
 iShares International Fundamental (CIE) is equal to  PowerShares FTSE RAFI Developed Mrkts ex-U.S. (PXF)
 Vanguard FTSE Emerging Markets (VWO) is more tax-efficient than
 Vanguard FTSE Emerging Markets (VEE)



  1. Canadian Couch Potato December 9, 2014 at 6:31 pm

    @Jen: No, the exemption on withholding taxes does not apply to RESPs or RDSPs (or TFSAs). It applies only to RRSPs and affiliated retirement accounts, such as LIRAs and RRIFs.

    The Complete Couch Potato might be appropriate for RESPs and RDSPs, but it depends on the circumstances. In general I think it is too complicated for most RESPs, which should really be kept nice and simple.

  2. Myles Mintzler January 19, 2015 at 2:08 pm

    What would be the chances of having you dummy down all the above information above into a chart. You would have all the Canadian ETFs listed and columns for RRSP TFSA RESPs and RDSPs and of course one for a taxable account and have good/bad for tax effiency…. Please……

  3. AJ April 2, 2015 at 6:05 am

    I opened up a TD Waterhouse TFSA account a week back and ordered all the below e-series index funds in the account:


    Should I rather move TDB902 and TDB911 in a non registered account?

  4. Should Canadians Buy GoPro Stock?Xtreme Canadian October 6, 2015 at 10:17 pm

    […] Dan Bortolotti’s excellent article on where to keep holdings for greatest tax efficiency here in the great white […]

  5. Hugh Cheung November 16, 2015 at 3:17 pm

    I am a bit confused ,on your Sep 20, 2012 post ” Foreign withholding tax:which fund goes where “, you suggested for RRSP to choose C (US-listed ETF that holds international stocks – withholding taxes non recoverable).
    Could you clarify in term of Tax efficiency investing ?
    Thank you

  6. Tito September 13, 2016 at 1:25 pm


    This is an old post, so I hope you’re still seeing this (I arrived very late to the “couch potato investment party”).

    Anyway, I read in one of the comments that TFSA are considered as registered. However, as far as I know (unless it changed?), RRSP and other registered retirement savings accounts are exempt of the withholding of the taxes on stocks, but TFSA accounts do not enjoy of this privilege.

    So… considering that in your article here you separate accounts in 2 groups (non-registered and RRSP), in the context of this article should I consider TFSA accounts in the groups of non-registered? Or in the group of RRSP (in spite of the difference in the tax treatment agreement between Canada and other countries)?

    Thanks in advance,


  7. Canadian Couch Potato September 13, 2016 at 1:40 pm

    @Tito: TFSAs are distinct from both RRSPs and non-registered accounts and the treatment of foreign withholding taxes is different from these to account types. See my more recent blog post on this topic, as well as the accompanying white paper:

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