Sorry for the long post that follows--I tried to summarize it as best I could! Recently I've been reading up on how to make my investments most tax-efficient, and it's pretty confusing... :confused:
Currently I'm only investing in the 4 basic TD e-series funds (Canadian, US, International, Bond Indexes). I know I should keep bonds in my RRSP, and Canadian Index in non-registered. That part is relatively straightforward (right?). But I get really confused when it comes to the foreign equities. According to part A in this article, it's better to keep the US/International Index in a non-registered (taxable) account because that way, the withholding taxes on dividends are recoverable (whereas you get nothing back if it's in RRSP/TFSA).
However, it doesn't go into capital gain taxes. As I understand, it's best in the TFSA (not taxed at all), then in taxable account (only 50% taxed at marginal rate) and worst in RRSP (deferred, but eventually taxed 100% at marginal rate). The matter is further complicated by the fact that I keep reading a U.S.-listed ETF is best in RRSP because withholding taxes don't even apply there. So, should I sell my TD e-series US Index and go for a US ETF instead? Or is the overall tax the same for US dividends whether I have the e-series US Index in taxable account (taxes recoverable) or US ETF in RRSP (taxes don't apply)? It seems to me that regardless, TFSA is still the best option even though withholding taxes apply on dividends, because I think in the long run, capital gains > dividends. Therefore "no tax on capital gains" should outweigh "no tax or recoverable tax on dividends"...right?
Am I making sense? I may be totally misunderstanding the tax rules here so feel free to correct anything and everything! (I did also read this article, but it doesn't seem to take the TFSA into account. :()
Currently I'm only investing in the 4 basic TD e-series funds (Canadian, US, International, Bond Indexes). I know I should keep bonds in my RRSP, and Canadian Index in non-registered. That part is relatively straightforward (right?). But I get really confused when it comes to the foreign equities. According to part A in this article, it's better to keep the US/International Index in a non-registered (taxable) account because that way, the withholding taxes on dividends are recoverable (whereas you get nothing back if it's in RRSP/TFSA).
However, it doesn't go into capital gain taxes. As I understand, it's best in the TFSA (not taxed at all), then in taxable account (only 50% taxed at marginal rate) and worst in RRSP (deferred, but eventually taxed 100% at marginal rate). The matter is further complicated by the fact that I keep reading a U.S.-listed ETF is best in RRSP because withholding taxes don't even apply there. So, should I sell my TD e-series US Index and go for a US ETF instead? Or is the overall tax the same for US dividends whether I have the e-series US Index in taxable account (taxes recoverable) or US ETF in RRSP (taxes don't apply)? It seems to me that regardless, TFSA is still the best option even though withholding taxes apply on dividends, because I think in the long run, capital gains > dividends. Therefore "no tax on capital gains" should outweigh "no tax or recoverable tax on dividends"...right?
Am I making sense? I may be totally misunderstanding the tax rules here so feel free to correct anything and everything! (I did also read this article, but it doesn't seem to take the TFSA into account. :()