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SlimArchi

Foreign Dividends and TFSA

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So I have a good idea about how the various tax free accounts work.

However, I’m still not one hundred percent sure about the foreign dividends implications.

 

From my understanding:

You buy a foreign etf like GLODIV or MSCIWORLD in your tfsa.

 

The companies in each etf bundle will pay dividends and withhold dividends tax.

 

This dividend (excl. dividends tax) is then paid out to us as the investors.

 

We are still essentially paying dividends tax.

 

When we sell the etf, there are no capital gains on the the capital gain. This is, therefore, the only portion that is really Tax Free in foreign amounts?

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Posted (edited)

That is 100% correct.

 

In decreasing order of tax benefit within a TFIA:

 

Local property ETFs
Main source of income:

1. Interest: Tax Free

2. Dividends: Tax Free
3. Capital Gains: Tax Free

Tax savings: Very High

 

Local high-dividend, lower-growth equities ETFs

Main source of income:

1. Dividends (large): Tax Free
2. Capital Gains: Tax Free

Tax savings: High

 

Local high-growth equities ETFs

Main source of income:

1. Capital Gains: Tax Free

2. Dividends (small): Tax Free

Tax savings: High


Foreign high-growth equities ETFs

Main source of income:
1. Capital Gains: Tax Free

2. Dividends (small): Taxed

Tax savings: Medium

 

Foreign high-dividend, lower-growth equities ETFs

Main source of income:

1. Dividends (large): Taxed
2. Capital Gains: Tax Free

Tax savings: Medium to Low

 

Foreign property ETFs
Main source of income:

1. Interest: Taxed

2. Dividends: Taxed
3. Capital Gains: Tax Free

Tax savings: Low

 

Edited by SaurusDNA
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Great thanks! I heard a podcast where Warren Ingram also suggested using your TFSA for property funds: so long as you’re diversified elsewhere.

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Yes, 25% of my own TFIA account is PTXTEN.

 

17 hours ago, SlimArchi said:

Great thanks! I heard a podcast where Warren Ingram also suggested using your TFSA for property funds: so long as you’re diversified elsewhere.

 

Of course, this only applies to local property, as foreign property ETFs (such as GLPROP) have almost no tax savings (other than capital gains).

My GLPROP is outside my TFIA at the moment. As you have suggested, it's still prudent to be diversified elsewhere.

 

Pretty much, for me, my local ETFs are in my TFIA and my foreign ones outside of it.

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