Dividend income in RRSP

[brunes]

When you have dividend income in your RRSP is there anything special you have to declare on your tax return, or is it totally sheltered until you withdraw from your RRSP?

And Does it matter if it is US dividend income vs. Canadian dividend income?

[FrugalTrader]

When you have dividend income in your RRSP is there anything special you have to declare on your tax return, or is it totally sheltered until you withdraw from your RRSP?

And Does it matter if it is US dividend income vs. Canadian dividend income?

Hey Brunes,

All investment income within an RRSP is tax deferred. Meaning exactly what you said, sheltered until you withdraw from your RRSP.

[brunes]

Hey Brunes,

All investment income within an RRSP is tax deferred. Meaning exactly what you said, sheltered until you withdraw from your RRSP.

Thats what I thought - just wanted to confirm. Thx.

[ShopperfiendTO]

And Does it matter if it is US dividend income vs. Canadian dividend income?

You have to keep in mind that Canadian dividend income gets preferential tax treatment, so you should weigh the benefits of tax deferral vs. the foregone dividend tax credit (DTC) you would otherwise be entitled to claim.

In other words, keep the US dividend income securities in your RRSP. However, do a bit of cost/benefit analysis on the Canadian dividend income securities to decide if you should keep them in your RRSP (no DTC ever) or keep them in a regular investment account (where you can claim the DTC).

[wasteislander]

On a related note, you will be hit with a US (IRS) withholding tax (25%) on any dividends paid into RESP accounts.

The reason being that RESP did not exist when tax treaties were signed between the US and Canada. I assume it will be the same for recently announced RDSP's.

This would be a good thing for our elected officials to take care of don't you think?

Cheers!

[CROSSBORDER TAX/LEGAL PRO]

What makes you certain that a US withholding tax is applied? Do you have any law or tax citations?

To see what's happenning in practice I just checked with an RRSP mgmt group and they responded that for a U.S. Citizen who is a Canadian Resident (i.e. lives in Canada), there is no US withholding tax imposed on the US source income generated within the RESP.

When the child reaches 18, if the child is resident of Canada, regardless of his/her citizenship, there is no w/h imposed on the income generated by the fund.

There is only US withholding tax imposed on the US income income generated if the holders (i.e. parents or child) are resident in US at the actual time when funds are withdrawn. They said withholding tax imposition on RRSPs is based on residency and not citizenship. So, even if the child goes to school in the US, but child's parents live in Canada and therefore child is resident of Canada, there would still be no withholding tax imposed.

I haven't researched the tax law and am most interested in your feedback and to hearing upon what basis in law you formualted your comments. thanks

[ronatola]

Hey Brunes,

All investment income within an RRSP is tax deferred. Meaning exactly what you said, sheltered until you withdraw from your RRSP.

Is it possible set it up as an automatic DRIP? What if there isn't enough funds to buy a whole share? I have just setup a self directed RRSP account with CIBC.

[notanexpert]

Is it possible set it up as an automatic DRIP? What if there isn't enough funds to buy a whole share? I have just setup a self directed RRSP account with CIBC.

It is possible to set up a DRIP. The company that you're DRIP'ing into has to have a DRIP program and your broker (CIBC) has to support it. You can probably get a list from CIBC of companies that they support for DRIPs. If the dividend is less than is needed to buy one share, then you're out of luck, they don't have fractional shares.
But for an active RRSP that you add money into on a regular basis, a DRIP is overrated in my opinion. You can just re-invest that dividend income at the same time that you contribute new cash to the account.

[ronatola]

If it's not in a DRIP the dividend income is taxable right? But then if I do as you suggest and 'just re-invest that dividend income at the same time that you contribute new cash to the account' - That amount comes off of my taxable income, correct?

It is possible to set up a DRIP. The company that you're DRIP'ing into has to have a DRIP program and your broker (CIBC) has to support it. You can probably get a list from CIBC of companies that they support for DRIPs. If the dividend is less than is needed to buy one share, then you're out of luck, they don't have fractional shares.
But for an active RRSP that you add money into on a regular basis, a DRIP is overrated in my opinion. You can just re-invest that dividend income at the same time that you contribute new cash to the account.

[AllWheelDrift]

If it's not in a DRIP the dividend income is taxable right? But then if I do as you suggest and 'just re-invest that dividend income at the same time that you contribute new cash to the account' - That amount comes off of my taxable income, correct?
If it's in an RRSP you don't have to worry about taxes.

[notanexpert]

That's right, no taxes on dividend income if it stays inside the RRSP, if its outside an RRSP a DRIP would not help you, it would still be taxable. The only advantage of the DRIP is that you do not pay comissions on the purchase of those incremental shares. But if you're contributing new money anyway, you will pay some comission on the purchase made with that money, so the DRIP in effect does not save you anything.

[ronatola]

I see now.

1. If not in a DRIP - the dividends are deposited straight into my RRSP account as CASH.
2. I can then add that CASH to my scheduled annual trade (purchase)

Question : Can I use the Dividends as an RRSP contribution? Does the financial institution add the Dividend amount to any new CASH I put into the account for that year towards my contribution receipt?

[AllWheelDrift]

I see now.

1. If not in a DRIP - the dividends are deposited straight into my RRSP account as CASH.
2. I can then add that CASH to my scheduled annual trade (purchase)

Question : Can I use the Dividends as an RRSP contribution? Does the financial institution add the Dividend amount to any new CASH I put into the account for that year towards my contribution receipt?
No, they dividends are not considered an RRSP contribution. Think about it, if your not charged tax on the dividend income, what are the chances the government would give you a tax deduction for it? Another way to think about it is, it doesn't count as a contribution because it's already coming from inside the RRSP.

[ronatola]

DOH!
Ok - thx for the clarification.

No, they dividends are not considered an RRSP contribution. Think about it, if your not charged tax on the dividend income, what are the chances the government would give you a tax deduction for it? Another way to think about it is, it doesn't count as a contribution because it's already coming from inside the RRSP.