RBC’s discount broker introduces foreign exchange—what you should know before you invest

Be that as it may, the Royal Bank’s move is sure to bring foreign stock trading to normal levels, as other banks may follow suit. So, what does RBC Direct Investing offer, and what do investors consider?

International trading with RBC Direct Investing

Online investors with RBC Direct Investing can now trade in Hong Kong, London, Paris and Frankfurt. Investors can also trade in Japan, Singapore, Australia and other small European markets over the phone.

You can also now hold foreign currencies, including the British pound, euro, Swiss franc and Japanese yen, as well as Singapore, Australian, New Zealand and Hong Kong dollars, in non-registered accounts.

Foreign funds cannot be held in registered accounts, such as registered retirement savings plans (RRSPs) and tax-free savings accounts (TFSAs). However, you can hold foreign securities in both registered and non-registered accounts. This means that Canadian dollars are converted to foreign currency by RBC Direct Investing to purchase investments, and foreign earnings are converted to Canadian dollars as they are received and deposited into your account.

What about restrictions or limitations on foreign investment?

Canadians used to be limited by the foreign goods limit in some registered programs. Between 1971 and 2005, there was a limit on foreign investment in RRSPs, retirement income funds (RRIFs) and pension plans, from 10% to 30%.

Some older investors still remember this rule and may not be sure if there are still restrictions. Foreign restrictions were lifted in 2005, and currently, there are no restrictions on foreign ownership of shares in Canada. There are, however, tax considerations.

Tax implications of holding foreign shares

If you buy foreign stocks from a registered account such as an RRSP or TFSA, the gains are generally subject to tax withholding.

Most countries impose a withholding tax on dividends at a rate between 15% and 25%. The rate may vary depending on the terms of the tax treaty between Canada and the other country—if any.