Why Canadian-listed ETFs may make more sense than U.S.-listed ETFs

When a Canadian resident considers investing in an exchange-traded fund (ETF) that tracks a U.S. stock market index, they often need to make an important decision. Should they purchase the U.S.-listed ETF? Or the Canadian-listed version? For example, the Invesco S&P 500 Equal Weight Index ETF CAD (EQL), offered by Invesco Canada, invests solely in the Invesco S&P 500 Equal Weight ETF (RSP), offered by Invesco U.S. Similarly, the Invesco NASDAQ 100 Index ETF CAD (QQC) is the Canadian-listed counterpart to the Invesco NASDAQ 100 ETF (QQQM). QQC’s entire holding is QQQM. In both cases, the Canadian-listed ETF is simply a wrap of the U.S.-listed version, providing the same underlying exposure to the U.S. markets.

Three main advantages of a Canadian-listed ETF

For the purposes of this article, we assume the investor is a Canadian resident who’s considered a non-resident alien (NRA) for U.S. tax purposes. It means they’re not a U.S. citizen, don’t hold a U.S. green card, and haven’t passed the substantial presence test. One note: From a tax perspective, both Canadian-listed and U.S.-listed ETFs are similar in one key area — foreign withholding tax. For both, dividends paid by the underlying U.S. companies are generally subject to U.S. withholding tax.

Advantage 1: Canadian-listed ETFs are exempt from filing CRA Form T1135

Form T1135, Foreign Income Certification Statement, must be filed by Canadian taxpayers who hold specified foreign property with a total cost exceeding $100,000 CAD at any time during the year. Canadian-listed ETFs are exempt from the definition of specified foreign property, so they don’t need to be reported on Form T1135, even if the underlying ETF holdings are considered specified foreign property. By contrast, U.S.-listed ETFs are generally considered specified foreign property and would typically be reportable on Form T1135 if the cost base is more than $100,000 CAD. Filing of this form is for disclosure only and doesn’t have an additional tax burden.

Additionally, according to the Canada Revenue Agency (CRA), specified foreign property held within a registered plan, such as a tax-free savings account (TFSA) or registered retirement savings plan (RRSP), is exempt from Form T1135 reporting requirements. So, a U.S.-listed ETF doesn’t need to be reported on Form T1135 if it’s held within a TFSA or other registered plan.

Advantage 2: Bypass U.S. estate taxes

Canadians who are entirely unaffiliated with the U.S. may be required to file a U.S. estate tax return and potentially pay U.S. estate taxes if they hold U.S.-situs property that exceeds a certain value at the time of their death. Generally, U.S.-situs property consists of real property and certain tangible and intangible personal property situated in the U.S., including U.S.-issued stocks, pension plans, and real estate, for example. U.S.-situs property that’s held in certain trusts and Canadian registered plans, including RRSPs, registered retirement income funds (RRIFs), and TFSAs, is also subject to U.S. estate tax. Also, a Canadian who’s a non-resident alien (NRA) in the U.S. (i.e., an individual who is neither a U.S. citizen nor a green card holder) must file a U.S. estate tax return if they held U.S.-situs assets valued at more than $60,000 USD at the time of their death. For this purpose, U.S.-situs property includes U.S.-listed ETFs, but excludes Canadian-listed ETFs that hold U.S.-listed ETFs.

Canadian residents are entitled to a unified credit under the Canada-U.S. tax treaty that effectively exempts them from paying U.S. estate taxes on their U.S.-situs properties (including directly held U.S.-listed ETFs) if the value of their worldwide assets at the time of their death is equal to or less than $13.99 million USD (for 2025). The exemption’s high limit, means most Canadians won’t pay U.S. estate taxes, even if they held U.S.-situs assets at the time of their death. The requirement to file a U.S. estate tax return, however, arises if a Canadian held more than $60,000 USD in U.S.-situs assets. An estate tax return must be filed even if no U.S. estate taxes are due. The U.S. estate tax return filing is fairly complex and would likely require a U.S. tax professional, which may lead to additional costs for the deceased individual’s estate.

Canadian-listed ETFs are generally not considered U.S.-situs property, even if the ETF holds U.S.-situs property. U.S.-listed ETFs are generally considered U.S.-situs property, however. Because of this, it may be advantageous to own Canadian-listed ETFs over U.S.-listed ETFs if an investor is concerned about U.S. estate tax.  

Advantage 3: Avoid U.S./foreign currency exposure

Canadian dollars must be used for Canadian tax reporting purposes. This includes the reporting of proceeds of disposition, adjusted cost base (ACB), outlays and expenses, and any capital gain or loss upon a disposition of capital property within a non-registered account. When a U.S.-listed ETF (e.g., QQQM) is purchased in a Canadian resident’s non-registered account, the resident is required to track the purchase price and subsequent distributions in Canadian dollars. Upon a disposition of the U.S.-listed ETF, a Canadian resident would have to calculate the fair market value of the sale proceeds on the date of disposition in Canadian dollars.

When a Canadian resident purchases a U.S.-listed ETF or security, they’re exposed to fluctuations in exchange rate between the U.S. and Canadian dollar. The capital gain or loss upon a disposition of a U.S.-listed ETF may be magnified or reduced based on the exchange rate at the time of purchase and redemption. If the Canadian dollar depreciates relative to the U.S. dollar from the time of purchase and redemption, a realized capital gain will be reduced. This is because proceeds of disposition in U.S. dollars are now worth less in Canadian dollar terms compared to the exchange rate at the time of purchase. A realized capital loss will be magnified because the proceeds in U.S. dollars are also worth less in Canadian dollar compared to the exchange rate at the time of purchase.

While a Canadian-listed ETF that holds a U.S.-listed ETF generally doesn’t hedge against foreign exchange fluctuations (though exceptions exist where the product expressly hedges against foreign currency exposure), a single domestic currency simplifies the tax reporting for investors.

Registered accounts (e.g., TFSAs, RRSPs, and RRIFs)

Within registered accounts such as TFSAs, RRSPs, and RRIFs, the impact of exchange rates on the ACB or proceeds of disposition is irrelevant because there’s no capital gain or loss for income tax purposes for these accounts. That said, there are still currency-related considerations when holding a U.S.-listed ETF within a registered plan:

• Does the registered plan issuer (i.e., the broker or financial institution) permit investments in U.S. dollars? Some financial institutions may not be able to accurately track and convert U.S. dollar transactions into Canadian dollars for reporting purposes. So, it’s essential that investors verify with their financial institution or brokerage whether U.S.-dollar-denominated holdings are permitted on their platform.
• How are contributions and withdrawals tracked within these registered plans? They generally must be recorded in Canadian dollars using the exchange rate applicable on the date of the transaction (e.g., contribution and/or withdrawal from the plan). While the CRA generally accepts exchange rates quoted by the Bank of Canada, it’ll also accept rates from other independent providers. They must be verifiable sources, be widely available, consistently published on an ongoing basis, and recognized by the market and in accordance with accepted business practices. Due to the potential variability in exchange rates used by registered account issuers, it’s important for the investor to verify the exchange rate used by their financial institution — either by reviewing account or contribution statements, or contacting the institution to ensure their contribution room is accurately tracked.

Foreign withholding tax considerations

Another important factor to consider when comparing Canadian-listed ETFs to their U.S.-listed counterparts is foreign withholding taxes. (We focus specifically on the comparison between a U.S.-listed ETF that holds U.S. securities and a Canadian-listed ETF that holds a U.S.-listed ETF, which in turn holds U.S. securities. For a broader overview of how foreign withholding taxes apply to both mutual funds and ETFs, visit our Tax & Estate Info Page, "Mutual Funds, ETFs and Foreign Withholding Taxes – Principles, Practicality and Tax Efficiency".

When a Canadian resident holds U.S. securities, dividends are generally subject to U.S. withholding tax. While the standard withholding rate on U.S. dividends paid to Canadian residents is 30%, it’s generally reduced to 15% because of the Canada-U.S. tax treaty. To use the reduced rate, the Canadian-resident investor may need to complete and submit Internal Revenue Service (IRS) Form W-8BEN, “Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding,” to their broker.

Foreign withholding tax applies regardless of whether a Canadian-resident investor holds a Canadian-listed ETF that invests in a U.S.-listed ETF holding U.S. securities or directly holds the U.S.-listed ETF. The key difference is the level at which the withholding tax is applied. Here are the differences in foreign withholding taxes between the two ETFs.

U.S.-listed ETF holding U.S. securities

A U.S.-listed ETF is generally resident in the U.S. for tax purposes. If an underlying U.S. security pays a dividend, it’s first received by the U.S.-listed ETF without any withholding tax applied. When income is distributed to a Canadian resident, U.S. withholding tax is generally applied because the U.S.-listed ETF is making a payment to a non-resident individual. Depending on the type of account in which the U.S.-listed ETF is held, the Canadian resident may be eligible for an exemption to the foreign withholding tax:

• RRSPs/RRIFs. If the ETF is held in an RRSP/RRIF, the withholding tax may be nil as per the Canada–U.S. tax treaty. Article XXI Exempt Organizations - paragraph 2 of the Canada –U.S. Tax Treaty exempts U.S. dividend-yielding and interest-yielding investments directly held inside Canadian pension plans (i.e., RRSPs, RRIFs, and their equivalent locked-in plans) from any U.S. withholding tax. IRS Form W-8BEN may need to be completed and submitted to the investor's broker to use this treatment. It’s also important to note that an individual should consult with their broker to ensure that their registered plan is reported as such with the IRS.
  
  
• Non-registered accounts or TFSAs. If held in a non-registered account or a TFSA, the treaty rate of U.S. non-resident withholding tax (15%) generally applies to U.S. dividends. In non-registered accounts, Canadian residents may be eligible to claim the federal and provincial foreign tax credit on any U.S. withholding tax withheld on their Canadian income tax return. If the investment is held within a TFSA, the foreign tax credit isn’t available.

Canadian-listed ETF holding a U.S.-listed ETF with U.S. securities

A Canadian-listed ETF is generally resident in Canada for tax purposes. If the Canadian-listed ETF holds a U.S.-listed ETF with U.S. securities, a dividend first received by the U.S.-listed ETF will not be subject to foreign withholding tax. The underlying U.S security is paying a dividend to a U.S. resident (i.e., the U.S.-listed ETF). The U.S.-listed ETF may then distribute income to the Canadian-listed ETF, which may be subject to foreign withholding tax because it’s distributing income to a non-resident (i.e., the Canadian-listed ETF). When the Canadian-listed ETF distributes income to a Canadian resident investor there’s no additional withholding tax:

• RRSPs/RRIFs: When the Canadian-listed ETF is held in an RRSP/RRIF, it would generally not be exempt from U.S. withholding tax. This is because the Canadian-listed ETF may not register with the IRS as exclusively held in RRSP/RRIF accounts. The foreign tax credit is not available to the Canadian resident investor because it’s held within a registered account.
  
  
• Non-registered accounts or TFSAs: If the investment is held in a non-registered account or a TFSA, the 15% U.S. non-resident withholding tax treaty rate generally applies to U.S. dividends. In non-registered accounts, the Canadian resident investor may be eligible to claim the federal and provincial foreign tax credit on any U.S. withholding tax withheld on their Canadian income tax return. If the investment is held within a TFSA, the foreign tax credit isn’t available.

Consider the benefits

While both Canadian-listed and U.S.-listed ETFs can provide exposure to U.S. markets, Canadian-listed ETFs that hold U.S.-listed ETFs may offer several administrative and tax-related advantages for Canadian investors. Although these benefits may not apply in every situation, particularly within registered accounts, it’s important to consider these factors when deciding which type of ETF best aligns with your investment goals and personal circumstances.