VFV vs S&P 500 ETFs: Why Canadians Choose the CAD-Listed Version

Every Canadian who's spent time on an American investing forum eventually asks the same question: why not just buy a US-listed S&P 500 ETF like VOO directly instead of the Canadian-listed VFV? The MERs on US giants are often even lower. Here's why most Canadians still end up choosing the CAD-listed version anyway.

The Alternative

US-listed S&P 500 ETFs like Vanguard's VOO or State Street's SPY trade on American exchanges, priced and paid out in US dollars. They track the exact same index as VFV — the S&P 500 — often at a marginally lower MER, since the US ETF market is enormous and fiercely competitive on price.

The Currency Conversion Problem

To buy VOO or another US-listed ETF, you first need to convert CAD to USD. Most Canadian brokerages charge a spread on that conversion — commonly somewhere around 1.5-2% — unless you use a Norbert's Gambit-style workaround or a brokerage with USD-settlement accounts. That one-time cost, paid on both the way in and eventually the way out, frequently outweighs years of MER savings from choosing the marginally cheaper US fund. VFV lets you skip that entirely: buy and sell in Canadian dollars, no conversion needed.

The RRSP Withholding Tax Flip

This is where the comparison actually flips in the US-listed fund's favour for one specific account. Recall that VFV, as a Canadian-listed wrapper, doesn't get the RRSP's US withholding-tax exemption — that tax is baked in at the fund level regardless of account. A US-listed S&P 500 ETF like VOO, held directly in an RRSP, genuinely does qualify for the Canada-US tax treaty exemption, meaning no US withholding tax drag at all inside that specific account type. For a large RRSP specifically, that's a real, quantifiable edge for VOO over VFV — it just doesn't apply in a TFSA or non-registered account, where the exemption doesn't exist either way.

T1135 Foreign Reporting

Once the total cost of foreign (non-Canadian) property you hold in a non-registered account crosses $100,000 CAD, you're required to file Form T1135 with the CRA. Directly-held US-listed securities like VOO count toward that threshold; Canadian-listed ETFs like VFV — even though they hold US stocks — generally do not, since legally you're holding a Canadian security. For investors approaching that threshold, this paperwork difference is a genuine, if unglamorous, point in VFV's favour.

So Which Should You Use?

As a rough pattern: US-listed S&P 500 ETFs like VOO held directly tend to make the most sense inside a large RRSP, where the withholding tax exemption is real and the currency conversion is a one-time cost against decades of compounding. VFV tends to make the most sense in a TFSA, a non-registered account, or any RRSP where you'd rather avoid currency conversion friction and T1135 complexity altogether. Neither choice is dramatically better in the long run for most portfolio sizes — the difference is measured in basis points, not outcomes.

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