The Tax-Free Financial savings Account (TFSA) is without doubt one of the greatest wealth instruments Canadians get, as a result of progress and withdrawals keep tax-free, and you retain full flexibility on timing. The superb print exhibits up once you go away Canada along with your investments. The account stays tax-free in Canada, however overseas governments don’t have to deal with it the identical approach, and that may quietly trim your returns with out you ever seeing a line merchandise in your assertion.
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These hidden guidelines
The largest hidden rule is overseas withholding tax on dividends. In case you personal U.S. dividend-paying shares or exchange-traded funds (ETFs) in a TFSA, the U.S. usually withholds 15% of the dividend on the supply beneath the tax treaty fee. You don’t get that withholding again in a TFSA. In a taxable account, you’ll be able to typically declare a overseas tax credit score.
The second superb print entice is “layers” of withholding when your international funding holds overseas shares by means of an additional wrapper. In case you purchase a Canadian-listed international ETF that holds U.S.-listed ETFs, and people U.S.-listed ETFs maintain worldwide shares, you may get overseas withholding contained in the underlying funds, and you may additionally face U.S. withholding on distributions in some constructions. You may by no means see it as a deduction as a result of it occurs contained in the fund earlier than the distribution reaches you. The result’s easy: your dividend yield seems superb on paper, however the after-withholding consequence may be decrease than you anticipate.
The third superb print situation is much less about tax and extra about friction. International investing typically means forex conversion, and forex conversion typically means charges, spreads, and timing danger. Even once you purchase Canadian-listed international ETFs, the underlying holdings commerce in different currencies, so your return will transfer with the Canadian greenback.
VXC
That’s why I like Vanguard FTSE International All Cap ex Canada Index ETF (TSX: VXC). It exists for Canadians who need international diversification in a single easy ticker. It goals to trace a broad international fairness index that excludes Canada, masking developed and rising markets. That design can scale back residence bias quick, which issues as a result of Canada’s market leans closely towards financials and vitality.
During the last yr, it continued to present broad publicity and saved prices comparatively low for the attain it supplies. The fund’s reported administration payment sits at 0.20%, and its administration expense ratio (MER) has been listed at round 0.22%. It additionally stays a sizeable ETF, with whole internet property reported round $3 billion as of the top of 2025.
Trying forward, the outlook for VXC ties to the worldwide cycle. If the U.S. financial system stays resilient and international earnings progress holds up, broad international fairness publicity can maintain compounding. If markets battle, VXC will battle with it, as a result of it’s designed to reflect the world, not dodge it.
Backside line
So, can VXC be an excellent TFSA funding to get across the hidden superb print? It may be an excellent TFSA holding for international progress and diversification, but it surely doesn’t magically erase the superb print. A TFSA doesn’t reclaim overseas withholding tax, and a world fairness ETF will nonetheless carry some withholding drag contained in the construction. The true win is simplicity and diversification, which may help you keep invested and maintain contributing. In case your purpose is long-term international compounding with minimal upkeep, VXC can nonetheless make quite a lot of sense even with the superb print.