Q: I think there may be some confusion about my previous question re VFV and also a question posed by umedali.
I may have misunderstand, but you seem to imply that VFV would undergo double taxation (withholding) because it is an etf that holds another etf. Is that what you mean by a “second level” of tax?
I am not sure this is correct. The etf being held by VFV would be U.S. domiciled, which would not be subject to tax on the dividends it receives from U.S. companies. However, VFV, being Canadian, would be subject to tax on the flow through of dividends to it from the underlying etf. Then, after this, the dividends should flow through to a Canadian holder without further tax, since it is from a Canadian listed etf. So only one round of taxation. Unfortunately, they call it “level 2” taxation in that link you provided, which is about the most ambiguous label they could have possibly come up with.
As far as I can tell, double taxation would only come into play if the underlying etf held by VFV itself held foreign securities (ex European stocks).
Apologize if I’ve got this all wrong, it’s not very clear on the Vanguard website imo.
I may have misunderstand, but you seem to imply that VFV would undergo double taxation (withholding) because it is an etf that holds another etf. Is that what you mean by a “second level” of tax?
I am not sure this is correct. The etf being held by VFV would be U.S. domiciled, which would not be subject to tax on the dividends it receives from U.S. companies. However, VFV, being Canadian, would be subject to tax on the flow through of dividends to it from the underlying etf. Then, after this, the dividends should flow through to a Canadian holder without further tax, since it is from a Canadian listed etf. So only one round of taxation. Unfortunately, they call it “level 2” taxation in that link you provided, which is about the most ambiguous label they could have possibly come up with.
As far as I can tell, double taxation would only come into play if the underlying etf held by VFV itself held foreign securities (ex European stocks).
Apologize if I’ve got this all wrong, it’s not very clear on the Vanguard website imo.
5i Research Answer:
Thank you for your follow-up. That is our mistake - that is correct that VFV would only be subject to Level 1 taxes (not double taxed) as it is a Canadian-listed ETF that holds a US ETF which in turn holds US-based stocks, rather than a Canadian-listed ETF that holds a US ETF which in turn holds international (Europe, etc.) stocks.
Authors of this answer, directors, partners and/or officers of 5i Research and/or affiliated companies have a financial or other interest in VFV.