Buying US Stocks in Canada - All You Need To Know (2024)

If you’re looking for a way to invest in the US stock market but don’t want to deal with the hassle of setting up an account south of the border, buying US stocks through a Canadian brokerage might be the solution.

So, if you intend to diversify your portfolio or take advantage of the higher returns that US stocks have historically generated, read on to learn everything you need to know about buying US stocks in Canada!

In this article, we’ll discuss the benefits of trading in US stocks, bonds, ETFs, and other types of shares from Canada and walk you through the process. We’ll also take a look at some of the fees and risks associated with this type of investment and offer tips on minimizing them.

The Benefits of Owning US Stocks in Canada

One of the biggest advantages of purchasing American stocks from Canada is that it gives you access to a much larger pool of investment opportunities. While the Canadian stock market is home to some fantastic companies, it’s overshadowed by the sheer size and scope of the US market.

Diversifying Your Portfolio

Investing in US stocks from Canada is an excellent way to diversify your portfolio. Having US assets alongside your Canadian stocks will enable you to balance out any risks associated with investing in a single country’s market. For example, if your US picks start slowing down, you can rely on your Canadian stocks to balance them out.

Better Overall Performance

What’s more, the historical performance of US stocks has surpassed that of their Canadian counterparts. Over the last decade, for instance, the S&P500 Index (a measure of the performance of large US stocks) generated an average annualized return of around 14%, while the S&P/TSX index (a measure of the performance of large Canadian stocks) only generated an average return of about half that.

Of course, past performance is no guarantee of future returns when investing in stocks in both Canada and the US. But if you’re looking to maximize your investment gains, buying US stocks is a profitable approach.

Currency Conversion Sometimes Means Discount

Another benefit of investing in US stocks is that you can take advantage of the currency conversion rate. When you buy US stocks in Canadian dollars at a favourable conversion rate, you essentially get a bit of a discount on your investment.

Of course, there are also some risks associated with buying US stocks as a Canadian that we’ll discuss later on. But overall, the benefits seem to outweigh the risks for most investors.

How Do I Buy US Stocks in Canada?

Buying US stocks is actually pretty simple. First, you’ll need to open an account with a Canadian brokerage that offers this service. There are many excellent online trading platforms based in Canada, but not all will allow their users to access the US market. Let’s have a quick overview of what you should look for when choosing a trading platform.

When selecting a Canadian brokerage through which you’ll buy US stocks, there are a few things you’ll want to keep in mind. First, the platform should be easy to use and navigate. It should also offer various options for investing in US stocks, so you can find the right ones to match your investing strategy.

Another important consideration concerns the fees associated with the platform. Some brokerages charge higher commissions for US stock trades, so you’ll want to make sure you’re getting a good deal.

Finally, you’ll want to consider the level of customer service the brokerage offers. When you’re dealing with US stocks from abroad, there’s always a chance that something could go wrong, as many factors are involved. Make sure you can reach out to a customer service team to help you out if any problems arise.

Popular Brokers for Buying US Stocks from Canada

Now, to help you narrow down the search, we’ve found a strong contender for your next trading platform in InteractiveBrokers which charges some of the market’s lowest brokerage fees. Alternatively, there’s Wealthsimple, which has no account minimums, and you can count on its human advisors to help you out in a pinch. Questrade is another excellent online broker you can sign up with, as it has no annual fees.

Still, don’t take our word for it, and make sure to understand the trading platform inside out before you sign up for its services. It’s paramount that the platform is a good fit for you and your preferences before you begin trading.

The Fees a Canadian Buying US Stocks Should Know About

The fees associated with this type of trade can vary depending on the broker you use, but they typically fall into two categories: commissions and currency conversion fees.

Commissions are the fees charged by your broker for each trade you make. These can range from a few dollars to over $100, so it’s important to compare the rates of brokerages before you commit to one.

Currency conversion fees are the fees your broker charges when you are buying American stocks in Canada using Canadian dollars. These fees can vary widely but are typically 1%-4% of your exchange.

Keep in mind that conversion fees typically go both ways. That means you’ll have to pay conversion fees from the Canadian dollar into US dollars when purchasing, and vice versa. These can eat significantly into your profit, so compare the rates of several brokerages before opting for one.

How The Norbert Gambit Can Help Avoid Overpaying Fees

The Norbert Gambit is a strategy often quoted as the best way to buy US stocks in Canada. It helps you avoid overpaying currency conversion fees, which are almost inescapable when trading US stocks at a Canadian brokerage. It involves buying US stocks listed on both the US and Canadian markets and purchasing the stock for Canadian dollars.

From there, you can contact your broker and ask to move your investment to the US market. Once the stock is traded on the US market, you can then sell it and convert your investment back into Canadian dollars.

The benefit of this strategy is that it allows you to avoid paying currency conversion fees twice, as you would if you bought and sold the same stock on the Canadian market.

The Risks and Tax Implications of Buying US Stocks in Canada

As with any kind of investing, risks are always involved when investing in foreign markets. The most obvious risk is that the stock may not perform as well as expected, and you could lose money in the process.

Another risk is that events happening in the foreign country where you have invested may affect the stock, which you may not be able to predict. For example, if there is political instability in the US, it could negatively impact US companies’ stock prices. That’s why it’s important to be aware of all the investment-related factors before you buy US stock in Canada.

Finally, you should know the tax implications of investing in foreign markets. In Canada, you may be subject to capital gains taxes if you make a profit on your investment.

Speaking of taxes, there are a few things to take into account when trading from Canada. After all, you don’t want any irregularities when reporting your income and capital gains, or breach of the regulations set down by the Canada Revenue Agency.

Now, Canadians aren’t taxed solely on their income from Canadian holdings, but on their income from abroad as well. When you invest in US stock and add it to your portfolio, you must also pay tax to the IRS. It stands at 15% withholding tax on dividends and 10% withholding tax on interest, as per the Canada and US agreement.

The good news is that the CRA will allow you to avoid double taxation on the income by claiming a foreign tax credit for the taxes paid internationally. Learning how to calculate foreign tax credit accurately is advisable, as different rates apply across various countries.

More Advantageous Ways To Invest in US Stocks From Canada

There are a few other ways to invest in US stocks from Canada that might prove more lucrative for you. One option is to purchase American Depositary Receipts, negotiable certificates for stocks of foreign companies traded on the US stock market. ADRs are usually traded at a higher price than the stock of those foreign companies, which is why it’s a good idea to opt for them.

Another possibility is to use a foreign broker that allows you to invest in US stocks from Canada. This can be great if you want more control over your investment but it comes with some risks. One is that you may not be able to get your money from the foreign broker if there is a problem with the company.

The last option is to use a Canadian mutual fund that invests in US stocks. This is recommended if you want to diversify your portfolio, but keep in mind that you will be subject to the management fees charged by the mutual fund.

Bottom Line on Buying and Selling US Stocks in Canada

Purchasing US stocks in Canada can be a good way to benefit from investing in the American market. It will allow you to diversify your portfolio and tap into this highly profitable market.

However, it’s also important to understand the costs and risks involved, especially if you are new to stock trading. Commissions and currency conversion fees can add up quickly, so comparing the rates of different brokerages before you commit is indispensable. There are strategies you can resort to when investing in foreign markets to help you avoid paying excessive fees.

Finally, keep in mind that Canadian investing in US stocks is subject to taxes and relevant fees. With some research and planning, you can make informed decisions about investing in US stocks from Canada.

FAQ

Should you invest in US stocks as a Canadian?

Purchasing US stocks from a Canadian broker can be a good way to invest in the American market and benefit from it. The advantages are that it will allow you to diversify your portfolio and tap into new markets. However, when figuring out how to buy US stocks in Canada, it’s essential to understand the costs and risks involved. Commissions and currency conversion fees can add up, so it’s crucial to compare the rates of several brokerages before you commit.

Are US capital gains taxed in a TFSA?

No, US capital gains are not taxed in a TFSA. However, all dividends and interest paid on US stocks will be subject to withholding taxes.

Do I have to pay tax if I buy US stocks?

Yes, if you are buying US stocks in Canada, you will be subject to capital gains taxes on any profits made. You’ll be paying 15% withholding tax on dividends and 10% withholding tax on interest to the IRS. Nevertheless, you can claim foreign tax credit for the taxes paid internationally at the Canada Revenue Agency to avoid being double-taxed for the same stocks.