Canadian investors get an enormous benefit from diversifying their portfolios with US and international stocks. But this benefit carries a cost in the form of foreign withholding taxes. Many countries impose a tax on dividends paid to foreign investors: for example, the US government levies a 15% tax on dividends paid to Canadians. Because these taxes are withheld before the dividends are paid in cash, they often go unnoticed.
But their impact can be far greater than that of management fees, which get much more attention. Our goal in this paper is to quantify the costs of foreign withholding tax in an effort to help investors make good decisions when choosing ETFs for their registered and taxable accounts.