Canadian-US investing differences

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There are significant differences between Canadian and US investing. Much of the investment literature available in Canada is produced in the United States for US investors. Canadian investors should be aware of some of the significant differences, because they will impact financial planning, tax planning and can impact tax-efficient investing choices.

Savings accounts for retirement and education

Stock markets

See also: Diversification
  • The Canadian stock market, as denoted by the Toronto Stock Exchange (TSX), is approximately 1/10 the size of the US stock market, as can be seen in the following table:[1][2]
Index characteristics
January 31, 2018
S&P/TSX Composite
S&P Total Market Index
Number of Constituents 250 3765
Adjusted Market Cap. ($ Billion) C$2,434 US$31,160
Top 10 Holdings (% Market Cap Share) 37.9% 16.7%
Weight of largest constituent % 6.9 2.9
Because market capitalization in the TSX drops off sharply, the market is more concentrated in a relatively small number of stocks, as can be seen in differences in the Top 10 Holdings Market Share.
Sector weights for Canadian and US markets
As of close-of-market January 31, 2018[1][4]
GICS® Sector S&P/TSX Composite
S&P Total Market Index
Financials 35.3 15.2
Energy 18.9 5.7
Materials 11.6 3.4
Industrials 9.5 10.9
Consumer Discretionary 5.5 12.9
Telecommunication Services 4.6 1.8
Consumer Staples 3.6 7.0
Real Estate 2.9 3.6
Health Care 0.9 13.5
Information Technology 3.5 23.3
Utilities 3.7 2.7
  • Canadian stock market returns have generally been lower than the US, but bond returns have been higher. Consequently, depending upon the measurement interval, stock and bond returns may exhibit less difference than corresponding US data (see the discussion in Risk and return).
  • Canadian tax laws do not distinguish between short-term and long-term capital gains. Unlike the US tax system, one cannot designate which lot(s) of shares is to be sold when placing a sell order, and cannot choose between FIFO, average cost or specific lots. Thus, in Canada, the adjusted cost base per share (that is, average cost) is used to determine the gain or loss.
  • The dividend tax credit in Canada makes dividend investing in a taxable account more attractive than it is in the US. This likely explains in part the relative popularity of preferred shares and dividend strategies in Canada.

Fixed income

  • Canada levies income tax on all bond interest, including municipal bonds.
  • US investors can easily buy Treasury bonds at auction using the Treasury Direct on the internet whereas Canadians have to buy them on the secondary market which means that Canadian investors are paying bid ask spread to the broker.
  • Canadian RRBs, unlike US TIPS, do not have a $100 face value minimum, so, in the event of extended deflation, could be worth less than the issue price.
  • Deposit insurance limits are different. In the US, FDIC protection is for $250,000 per account[5] whereas for Canadians, CDIC protection limit is $100,000 per account.[6]
  • Accrued interest calculations on bonds generally follow an "actual/365" day count.[7] This differs from American practice, which is usually "actual/actual" for Treasuries longer than one year and "30/360" for corporate issues[citation needed].

Tax considerations

Canadian purchasers of US securities should be aware of the tax consequences. Also, the Canada Revenue Agency's $100K reporting limit may require filing of a Form T1135.[8]

Homes and taxes

Canada does not have a mortgage-interest deduction (however, see Smith Manoeuvre), nor are property taxes deductible from taxable income. Instead, the capital gains from a principal residence sale are not taxed.

Estate planning

Main article: Estate planning

At death, Canada deems that all property, including listed securities, were deemed to be disposed, thus resulting in a capital gain or loss.[9] USA allows a step-up in the adjusted cost base at death (no gain or loss for the deceased), but assesses an estate tax which can be onerous; Canada has no estate tax. (Probate is often referred to as a tax, is levied by many Canadian provinces and US states, but its level is an order of magnitude lower than the US estate tax).

Transaction settlement dates

Main article: Settlement

Settlement dates can be different due to difference in holiday dates, thus business days. For example, Canada has an extra holiday for Boxing Day,[10] between Christmas and New Year's, which may impact year-end tax planning.

For Canadian investors in taxable accounts, tax law says the you made the transaction on the settlement date. This differs from the US, where tax law states that you made the transaction on the trade date.[11][12]

See also


  1. 1.0 1.1 1.2 Standard and Poors, S&P/TSX Composite, viewed February 10, 2018.
  2. Standard and Poors, S&P Total Market Index, viewed February 10, 2018.
  3. MSCI Indices, Global Industry Classification Standard (GICS®) Structure - GICS - MSCI, retrieved November 28, 2012.
  4. Standard and Poors, S&P Total Market Index, viewed February 10, 2018.
  5. FDIC, How Are My Deposits Covered?, viewed 7 January 2018.
  6. CDIC, What We Cover, viewed 7 January 2018.
  7. Investment Industry Association of Canada, Canadian Conventions in Fixed Income Markets - A Reference Document of Fixed Income Securities Formulas and Practices, Release: 1.1, viewed June 25, 2012.
  8. Financial Wisdom Forum, T1135 - Just the beginning?
  9. CRA, Preparing Returns for Deceased Persons, viewed 7 January 2018.
  10. TMX Group, Stock Market Trading Hours, Stock Market Hours and Holidays, viewed December 8, 2014.
  11. IRS, Publication 17 (2013), Your Federal Income Tax, viewed January 1, 2014.
  12. Last Day to Sell, viewed January 1, 2014.

Further reading

External links