How to Buy US Stocks as a Canadian Resident
Empower your US stock investments as a Canadian. Understand the critical financial and logistical considerations for a streamlined cross-border portfolio.
Canadians seeking to diversify their investment portfolios often look to the United States stock market. This market offers a wide array of companies and growth opportunities that may not be available domestically. Navigating the process of investing in US stocks from Canada involves understanding various steps, from selecting a suitable investment platform to managing currency conversions and recognizing tax implications. This article outlines the essential considerations for Canadian residents embarking on this investment journey.
Selecting an Investment Platform
Choosing the right investment platform is an initial step for Canadians looking to buy US stocks. Canadian investors can typically choose between online discount brokers and full-service brokers. Online discount brokers generally offer lower trading fees and are suitable for self-directed investors, while full-service brokers provide more personalized advice and research tools, often at a higher cost.
When evaluating platforms, several criteria warrant consideration. Trading fees, including commissions per trade and Electronic Communication Network (ECN) fees, directly impact investment returns, particularly for frequent traders. Account minimums, the range of available investment products like stocks and Exchange Traded Funds (ETFs), and the quality of research tools and customer support are also important factors. The ease of use of the platform’s interface contributes to a smoother trading experience. Ensure the chosen platform is regulated in Canada by the Canadian Investment Regulatory Organization (CIRO), which oversees investment dealers and trading activity.
Understanding Account Options
Canadians have several account types for holding US stocks, each with distinct tax implications. Registered Retirement Savings Plans (RRSPs) are designed for retirement savings and offer tax-deferred growth. A benefit of holding US stocks within an RRSP is that dividends from these stocks are exempt from US withholding tax due to the Canada-US tax treaty. This exemption maximizes returns on dividend-paying US equities within these accounts.
Tax-Free Savings Accounts (TFSAs) allow investment income and capital gains to grow tax-free in Canada. However, US dividends received within a TFSA are subject to a 15% US withholding tax, which is not recoverable. Non-registered (cash) accounts offer flexibility with no contribution limits, but capital gains and dividends are fully taxable in Canada. Capital gains are taxed at a 50% inclusion rate, meaning only half of the gain is added to your taxable income, while foreign dividends are taxed as ordinary income at your marginal tax rate. Strategic placement of US stocks across these account types based on their dividend yield and growth potential can optimize after-tax returns.
Navigating Currency Conversion
Converting Canadian dollars (CAD) to US dollars (USD) is a key aspect of buying US stocks, and exchange rates influence the overall investment outcome. Brokerages typically offer direct currency conversion, which may involve a spread or fee embedded in the exchange rate, ranging from 1% to 4%. Some platforms allow investors to hold USD-denominated cash accounts, which can avoid repeated conversion fees for multiple US stock trades.
An advanced strategy for converting larger sums is “Norbert’s Gambit,” which minimizes conversion costs. This method involves buying shares of an interlisted stock or ETF, such as Horizons US Dollar Currency ETF (DLR.TO), on the Canadian exchange in CAD, then “journaling” these shares to the US side of your account where they trade in USD (DLR.U.TO). Once journaled, the shares can be sold for USD, converting currency at a rate closer to the interbank rate, often incurring only standard trading commissions. This process typically takes around three business days. Norbert’s Gambit is generally more cost-effective for larger conversions, while direct brokerage conversion might be simpler for smaller amounts.
Tax Implications of US Stock Ownership
Canadian residents owning US stocks face tax considerations from both Canadian and US tax authorities. In Canada, capital gains realized from selling US stocks are subject to Canadian income tax, with 50% of the gain included in your taxable income. This is calculated based on the Canadian dollar equivalent of the gain, considering exchange rates at the time of purchase and sale. US dividends received in non-registered accounts are taxed as foreign income at your marginal income tax rate in Canada.
The US imposes a 15% withholding tax on dividends paid to Canadian residents. This rate is reduced from the default 30% under the Canada-US tax treaty. To benefit from the reduced rate, investors must submit a W-8BEN form to their brokerage. While this withholding tax applies, a foreign tax credit can be claimed on your Canadian tax return to reduce double taxation for income in non-registered accounts. However, dividends in TFSAs do not qualify for this credit.
US estate tax is another consideration for Canadians with US-situated assets, including US stocks. This tax applies to the value of US-situs assets exceeding certain thresholds at the time of death. For 2025, the lifetime US estate and gift tax exemption is USD $13,990,000, though this amount is scheduled to revert in 2026. Canadians are entitled to a prorated unified credit, which can exempt US-situs assets up to USD $60,000 from US estate tax. Brokerages issue tax slips such as T3, T5, and NR4, which summarize investment income and any taxes withheld, assisting with accurate tax reporting in Canada.