Tax Me If You Can: Foreign Withholding Taxes on ETF Distributions

In this tax-heavy episode, Justin discusses his part-time obsession – foreign withholding taxes. Throughout the show, he explains which specific ETFs are best held in each account type in order to reduce this largely hidden tax drag. He is joined by industry experts from BMO, BlackRock and Vanguard, who each discuss their company’s approach to mitigating this cost. ZEM and XEC also go head-to-head in the latest ETF Kombat. As a side-bar, Justin’s popular model ETF portfolios have been updated for 2020, and now include Light and Ridiculous levels of portfolio complexity (with Ludicrous and Plaid versions in the works). Justin finishes off the show by answering a listener question regarding the new iShares foreign equity ETFs that trade in U.S. dollars.

• Three ETF structures for accessing U.S., international and emerging stock markets [0:02:03.3]
• How Level I and Level II withholding taxes arise [0:02:28.3]
• How the type of account holding your ETF impacts foreign withholding taxes [0:03:44.3]
• The most tax-efficient U.S. equity ETFs for each account type [0:05:41.3]
• Why investors with smaller portfolios should generally avoid U.S.-listed ETFs in their RRSP (even when using the Norbert’s gambit strategy to cheaply convert their loonies to dollars) [0:06:43.3]
• When can purchasing U.S.-listed ETFs in TFSAs and taxable accounts still make sense? [0:09:03.3]
• Kevin Prins of BMO ETFs discusses some of their tax-efficient international and emerging markets equity ETFs [0:11:31.3]
• The worst fund structure for international equity ETFs [0:14:28.3]
• The most tax-efficient international equity ETFs for each account type [0:15:27.3]
• Steven Leong of BlackRock Canada discusses XEF’s transition from a U.S. wrap structure to one that holds the stocks directly, and why the U.S. wrap structure can still be a more cost-effective choice for some other asset classes [0:18.40.3]
• The most tax-efficient emerging markets equity ETFs for each account type [0:24:11.3]
• Why ZEM’s tax-efficient structure may still not beat XEC’s after all costs are considered [0:26:03.3]
• ETF Kombat: ZEM vs. XEC [0:27:51.3]
• The most tax-efficient global equity ETFs for each account type [0:31:23.3]
• Scott Johnston of Vanguard Canada discusses the recent tax-efficient changes to VXC’s fund structure [0:32:28.3]
• The overall cost of currency-hedged global fixed income ETFs (and why there’s still room for improvement) [0:35:42.3]
• Foreign withholding taxes on the Vanguard and iShares asset allocation ETFs [0:38:09.3]
• Ask Bender: Martin has a question about the foreign withholding tax implications of the new iShares USD ETFs (XUU.U, XEF.U, XEC.U and XAW.U) [0:39:28.3]
• Next episode, we’ll tackle asset location (i.e. where you should hold each of your ETFs for maximum tax efficiency). See you then! [0:42:06.3]