Shares in foreign Corporations

Canadian residents who invest in shares which are traded on U.S. stock exchanges are not required to file a U.S. income tax return because of these investments, unless there is some other reason (e.g., U.S. citizen) for filing a U.S. income tax return.  All income and capital gains from the foreign shares will be reported on your Canadian income tax return.  There will be withholding tax deducted from the foreign dividends at the time they are paid, which you can at least partially recover by claiming a foreign non-business tax credit when you file your tax return.  If the shares are in a registered account such as an RRSP or RRIF, there is often no withholding tax.  When the foreign shares are in a TFSA, withholding tax will be deducted, and cannot be recovered. US estate tax may be payable by Canadian residents on US assets owned at the time of death, including shares in US corporations.

The dividend income received from foreign corporations does not qualify for a dividend tax credit, so tax is paid on 100% of the dividend (before deduction of withholding tax), when you file your Canadian tax return.

Distributions made by foreign shares to Canadian shareholders are usually considered foreign dividends, 100% taxable.  When distributions from US shares are categorized as capital gains or return of capital for US taxpayers, they will still be considered fully taxable to Canadian taxpayers. This would also apply to foreign mutual funds or exchange traded funds.

The dividend income must be converted to Canadian dollars to determine the amount to include in your income.  You can convert using the exchange rates on the dates your foreign dividend income is received, or you can use the average annual exchange rate, as published by the Bank of Canada, for all the dividends received in the year. 

The adjusted cost base of the foreign shares must be calculated in Canadian dollars.  If foreign funds were used to purchase the shares, the exchange rate on the date of the purchase (trading date, not settlement date) is used to convert to Canadian dollars.

When shares in the foreign corporation are sold, the proceeds are converted to Canadian dollars using the exchange rate on the date of the sale (trading date).

See the 2 examples below using shares purchased in US$: