With the exchange rate between the American and Canadian dollars at a hair’s breadth from par, it has given me a good opportunity to see what my brokerage is charging me to receive U.S. dividends.
If you are unaware (as I was when I created my RBC Direct Investing RRSP) many self-directed RRSPs don’t allow you to keep U.S. assets within your plan in U.S. dollars. I found this out after setting mine up. This slightly deflated my plans of continuing to collect U.S. dividends in U.S. dollars (while avoiding the 15% withholding tax) to eventually be used toward further purchases of U.S. securities.
As it stands, everything must be converted to Canadian dollars. So I’ve avoided the withholding tax, but am forced to convert to Canadian at that day’s rate and pay the spread. Since I didn’t transfer my U.S. assets to this account until December, and didn’t think to check the numbers on my first dividends in January, I was unsure what the bank was taxing me.
On Monday I received a dividend that gave me the information I needed.
That day, the listed exchange rate was $1USD to $1.003CAD. Calculating the percent change between the dividend I should have received at that rate and the cash I actually received, I found that RBC took a 1% cut.
Of course the withholding tax avoidance is the better deal, but I’d like to be able to do what I like with my money, whether that be using my U.S. dollars to buy more U.S. assets, or converting to Canadian when it is beneficial to me. In today’s par environment, I’d rather keep my Greenbacks and convert if/when the Canadian dollar weakens in comparison.
The good thing is that this system looks to be coming to an end. Recently the Canadian Capitalist reported that RBC will be allowing U.S. assets to be held in U.S. dollars in the coming months. Once that happens, all things will be back to plan…or that’s the plan, at least.