Question of the Week: Do I pay taxes on foreign stock investments

One of our readers is interested in investing in equities. However, they are not sure how taxes work when investing in companies that are listed on a foreign market like the New York Stock exchange.

Anyone that holds shares in a company traded on a foreign exchange are usually not required to file income tax returns in that country. Instead all income from those shares, through dividends and capital gains for example, must be reported on their Canadian income tax return. This does not include any foreign equity investments held in a TFSA or RRSP.

To be reported properly, any income made in foreign currency, US dollars for example, must be converted into Canadian dollars before being reported. In circumstances where taxes are paid on those investments in a foreign country, Canadians can avoid double taxation by applying for the Federal Foreign Tax Credit.

If you have any foreign equity investments and have questions about your taxes be sure to bring up specific questions about investments with your adviser and a tax expert to make sure you are following all rules down to the letter.