Expert: Steven Taylor - 9/9/2010

Question
I am trying to learn about the tax consequences of investing
in Canadian Stocks.  That is, (1) are dividends taxed in both
U.S. and Canada? (2) What about capital gainslosses - is there dual taxation?  Is there some information source where
I can go to learn more about this subject?

Answer
Bruce, assuming you are buying and selling the stock with brokers in your own country, cross-border investing is covered by international tax treaties. These treaties allow these investments to be taxed only once - by your home country. So, your dividends and capital gains will only be subject to US taxes. However, those treaties also have a built-in mechanism to make sure you do pay those taxes. They have a 15% withholding on dividends and distributions (no special withholding on capital gains on international stocks for US investors on stocks bought and sold in the US). The majority of investors can get that 15% withholding back in full when they file their 1040 tax form. However, there is no allowance for a refund to retirement accounts. Therefore, you should not invest in foreign dividend paying stocks in your IRA or else you are automatically out 15% of those dividends off the top.

I suggest you contact your broker regarding the regulations in full.