How to Buy Canadian Stocks in the US

Investing in international markets offers opportunities for diversification and growth, and Canadian stocks have become an accessible option for investors in the United States. The close economic ties and geographic proximity between the two nations often make Canadian companies familiar to American investors. This guide provides information on the practical aspects of acquiring Canadian equities.

Setting Up Your Investment Account

To invest in Canadian stocks, a US investor needs a brokerage account that facilitates international trading. Not all brokerage firms offer direct access to foreign exchanges, so select one providing access to Canadian markets, specifically the Toronto Stock Exchange (TSX) and the TSX Venture Exchange. Evaluate commission structures for international trades, which can vary and include currency conversion costs or flat fees, often ranging from approximately $5 to $50.

When opening an account, individuals typically provide:
Personal identification (e.g., driver’s license, passport)
Proof of address (e.g., utility bill)
Tax identification (Social Security Number or Individual Taxpayer Identification Number)
The brokerage also requires financial details, including income, employment, and investment objectives, to ensure suitability.

Understand the different account types available. A taxable brokerage account is most common for foreign stock purchases. While some retirement accounts, like IRAs, may permit international investments, confirm your chosen account supports Canadian stock ownership and any associated tax implications.

Navigating Canadian Stock Exchange Listings

Canadian stocks are accessible to US investors through several avenues, each with distinct trading and currency characteristics. Many Canadian companies “interlist” their shares on both a Canadian exchange (e.g., TSX) and a major US exchange (e.g., New York Stock Exchange or NASDAQ). Trading these shares is often the most straightforward method for US investors, as transactions occur in US dollars directly through a US brokerage account, similar to buying domestic stock.

Another method involves Over-the-Counter (OTC) markets, including American Depositary Receipts (ADRs) and “pink sheet” listings. ADRs represent shares of a foreign company held by a US depositary bank, allowing them to trade on US exchanges in US dollars, simplifying the investment process. Shares on OTC Markets, including “pink sheets,” are often smaller Canadian companies not meeting major US exchange listing requirements; they trade in USD, though liquidity may vary.

For Canadian companies trading exclusively on Canadian exchanges (TSX or TSX Venture Exchange), US investors can gain direct access through brokerages offering international trading. This requires converting US dollars to Canadian dollars (CAD) within the brokerage account. This method provides access to a broader range of companies but introduces direct currency exposure and potential foreign exchange fees.

Placing Orders and Managing Currency

Executing a trade for a Canadian stock depends on its listing. For interlisted stocks trading on a US exchange, placing a buy order is similar to any domestic stock purchase; investors can choose between a market order or a limit order. The transaction occurs in US dollars, with the brokerage handling currency considerations.

When purchasing Canadian stocks traded exclusively on the TSX or TSX Venture Exchange, the process involves converting US dollars to Canadian dollars. Many brokerages offer integrated currency conversion, allowing investors to convert funds within their account before placing a trade. This conversion occurs at the prevailing exchange rate, often with a small spread or fee. Once funds are in CAD, investors can place market or limit orders.

After a trade is executed, confirmation documents and account statements will detail the transaction, including the currency used and any associated exchange rates or fees.

Understanding Tax Implications

US investors holding Canadian stocks face specific tax considerations, primarily related to capital gains and dividends. Any profits realized from selling Canadian shares are generally subject to US capital gains tax, similar to selling domestic stocks. Dividends received from Canadian companies are typically taxed as ordinary income in the United States. To prevent double taxation, the US tax system allows for a foreign tax credit, which can offset US taxes owed on foreign income, and is usually claimed using IRS Form 1116.

Canadian withholding tax is also applied to dividends paid to non-residents of Canada. Under the US-Canada tax treaty, this rate is often reduced to 15% for US residents from the typical 25%. To claim this reduced rate, investors generally need to submit IRS Form W-8BEN to their brokerage. The brokerage then remits the reduced withholding tax to the Canadian authorities.

Beyond income and capital gains taxes, US investors may have specific reporting requirements for foreign financial assets. If the aggregate value of foreign financial accounts, including those holding Canadian stocks or Canadian currency, exceeds $10,000 at any point during the calendar year, US persons must report these accounts to the Financial Crimes Enforcement Network (FinCEN) using FinCEN Form 114. Additionally, certain individuals holding specified foreign financial assets above specific thresholds may need to report these assets on IRS Form 8938.