When Canadians buy US stocks through ETFs, two quiet costs affect returns over time: withholding tax and currency exposure. Neither is complicated once you separate them, but many investors accidentally mix the two together. You control both through two choices: which fund you buy, and which account you keep it in. This post walks through both using the most common Canadian choice, VFV versus VOO, with the hedged version VSP in the mix.
Two small costs, not one
People tend to blur these together. They are separate things, so let us keep them apart.
1. US withholding tax. When a US company pays a dividend, the US government takes a 15% cut before it reaches an investor outside the US. Whether you get that cut back depends on the account you hold the fund in.
2. Currency. The S&P 500 trades in US dollars, but you spend Canadian dollars. You can leave that US-dollar exposure in (unhedged, like VFV) or pay a fund to remove it (hedged, like VSP).
VFV, VSP and VOO all track the same thing, the S&P 500. They only differ on these two points.
Cost 1: withholding tax, and why your account decides it
In plain terms, “withholding tax” is just the 15% the US skims off the dividends its companies pay to non-Americans. Since the S&P 500 yields roughly 1.2% to 1.3%, losing 15% of that works out to about 0.2% per year. Small, but it adds up over time, and sometimes you can get it back.
One rule drives everything: a US-listed ETF like VOO, held in your RRSP, escapes the 15% completely, thanks to the Canada-US tax treaty. A Canadian-listed fund that holds US stocks, like VFV or VSP, does not, even in the same RRSP. Here is how that plays out across the three main accounts:
- RRSP: the only account where the ETF structure usually changes the outcome. VOO held directly pays no US withholding tax. VFV or VSP lose about 0.2% a year to it.
- TFSA: a wash. The treaty does not cover TFSAs, so every option loses the 15% and none of it comes back.
- Non-registered (taxable): close to a wash. You pay the 15%, but you can usually claim most or all of it back through the foreign tax credit.
| Account | US-listed ETF (VOO, IVV, VTI) | Canadian-listed ETF wrapping a US ETF (VFV, VSP) |
|---|---|---|
| RRSP | 0% US withholding tax (treaty-exempt) | 15% withholding tax lost inside fund, not recoverable (~0.2%/yr drag) |
| TFSA | 15% US withholding tax, not recoverable | 15% withholding tax lost inside fund, not recoverable |
| Non-registered | 15% US withholding tax, recoverable via foreign tax credit | 15% withholding tax, generally recoverable via foreign tax credit |
This applies to Canadian ETFs that hold a US-listed ETF internally, such as VFV and VSP. Other ETF structures can have slightly different withholding-tax mechanics.
So the only account where the fund you pick changes your tax bill is the RRSP. The fuller breakdown, including where to put bonds and international stocks, is on the Canadian 3-Fund portfolio page. For how the accounts themselves work, see the TFSA contribution room guide.
The short version
If you just want the answer, here it is. The rest of the post explains why.
- RRSP + large balance → VOO can be worth the extra hassle
- TFSA → VFV is usually simpler and just as tax-efficient
- Taxable account → little tax difference after foreign tax credits
- Long-term investor → unhedged (VFV) is usually the default choice
- Short-term spending horizon or lower risk tolerance → consider VSP
VFV vs VOO: what the choice is worth
In an RRSP, VOO saves you that 0.2% in tax, plus a little on fees (about 0.03% a year versus roughly 0.09% for VFV). Call it a quarter of a percent a year. Real, but small.
Catching it has a cost too. To buy VOO you need US dollars, so you have to convert your Canadian dollars, and your dividends then arrive in US dollars to manage. (Investors who convert larger sums often cut that cost using a trick called Norbert’s Gambit.) It is worth it on a large balance. On a small or new account, the conversion cost often eats it.
Everywhere outside the RRSP the tax difference disappears. That is why VFV’s simplicity (Canadian dollars, no converting) makes it the default for most Canadian investors, and for the portfolios backtested on this site.
Cost 2: currency, and where VSP fits
Should you buy the hedged version, VSP, instead of VFV?
One thing first. VSP does not change the tax story at all. It holds VOO just like VFV, so it gets the same 15% treatment in every account. The only thing VSP changes is currency. It pays to cancel out US-dollar swings, so your return follows the S&P 500 in US-dollar terms instead of in loonies.
Here is what that looked like over the last 13 years (Yahoo Finance data, see the methodology page). One caveat before the numbers: this period strongly favoured the US dollar, which boosted unhedged returns.
| Fund | What it is | Return per year | Total return |
|---|---|---|---|
| VFV | Unhedged S&P 500 (CAD) | 17.7% | +809% |
| VSP | Hedged S&P 500 (CAD) | 14.0% | +490% |
That looks like a knockout for unhedged VFV. But most of that gap is not a hedging fee, it is just currency. Over those years the US dollar rose about 38% against the loonie. VFV rode that gain on top of the index. VSP gave it up on purpose, which is exactly what a hedge does. Had the loonie risen instead, VSP would have won by a similar margin. Choosing hedged or unhedged simply changes how much USD/CAD movements affect your return.
Take the currency direction out and a smaller, steady cost is left. A hedge is not free to run, and that ongoing cost is roughly half a percent to a percent a year (per research from PWL Capital and Vanguard).
Hedging still makes sense in a couple of cases: if you will need the money within a few years, or if watching your balance swing on currency moves would scare you into selling. What usually does not hold up well is hedging a long-term holding purely because you expect the loonie to rise. That is a currency forecast, and those are very hard to get right.
Bottom line
None of this is advice for your situation. It is the math laid out so you can run it for yourself, with your own account, balance and time horizon. The methodology page shows how the numbers above were produced and what they leave out.
Sources
- Withholding tax by account type (RRSP treaty exemption, TFSA non-coverage, non-registered foreign tax credit): Vanguard Canada, The impact of withholding taxes on Canadian ETF investors (PDF); BlackRock Canada, Understanding Foreign Withholding Tax (PDF). Accessed 2026-05-28.
- Foreign tax credit (recovering withholding tax in a taxable account): Canada Revenue Agency, line 40500 federal foreign tax credit. Accessed 2026-05-28.
- Currency hedging cost: Justin Bender, Hedging Your Bets with Currency-Hedged ETFs: An Overview (Canadian Portfolio Manager / PWL Capital), plus Vanguard’s currency-hedging research. Accessed 2026-05-28.
- Return figures (VFV.TO, VSP.TO, USD/CAD, Nov 2012 to May 2026): Yahoo Finance adjusted close, computed with this site’s backtest engine. See the methodology page.
- Management fees: Vanguard Canada fund pages (VFV, VSP) and Vanguard US fund page (VOO). Confirm the current MER on the provider page before relying on it.
Educational only, not financial advice. The instruments discussed on Dad Finance can lose money, and past performance does not guarantee future results. If a page contains affiliate links, they’ll be clearly marked. See the disclaimer for the full version.