Withholding taxes can take a bite out of your foreign equity ETFs

The type of ETF and the account it's held in determine how much of your dividends the taxman will keep.

Yan Barcelo 28 August, 2018 | 5:00PM

As North American markets appear overvalued to many observers, investing outside Canada and the United States stands as an attractive alternative. However, for exchange-traded funds, this advantage carries the cost of withholding taxes applied to dividends, a cost ranging between zero and 69 basis points (0.69%) depending on the ETF and the type of account, according to a study by PWL Wealth Management.

The PWL study, titled Foreign Withholding Taxes – How to estimate the hidden tax drag on US and International equity ETFs, analyses all aspects of this issue and is written by Justin Bender and Dan Bortolotti, respectively portfolio manager and associate portfolio manager, in Toronto.

"Because these taxes are withheld before the dividends are paid in cash, they often go unnoticed," write the authors. "But their impact can be far greater than that of management fees, which get much more attention."

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About Author

Yan Barcelo  is a veteran financial and economic journalist with more than 30 years of experience, writing for many publications in Toronto and in Montreal, including CPA MagazineLes Affaires and Commerce.

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