TSE:CHB and US withheld tax

External question — Personal Finance Stack Exchange Author: Isaac Original post: https://money.stackexchange.com/questions/152129 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. "iShares U.S. High Yield Fixed Income Index ETF (CAD-Hedged)" (TSE:CHB) is listed on the TSX and tracks an index of US high-yield bonds. It holds these bonds directly (i.e. not through a US-listed ETF). As such, I figured that investing in CHB inside a TFSA would be suboptimal, as withheld US taxes can't be recovered in any way (whereas, inside an RRSP, there are no withheld US taxes to begin with). However, looking at CHB's distribution history for 2020, I can see that it generated foreign income ($0.95265 per unit), while it paid $0 in foreign tax. Looking at my broker's records, I can't see any US withholding tax activity for this security whatsoever. I'm not sure what that means. Does CHB "work around" US withheld taxes in any way? How does this happen? Is it, therefore, reasonable to hold CHB in a TFSA?

External answer — Personal Finance Stack Exchange Author: Flux Original post: https://money.stackexchange.com/a/152134 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. Does CHB "work around" US withheld taxes in any way? How does this happen? Income from US bond interest may be considered "portfolio interest" or "qualified interest income" (see 26 U.S. Code § 871 - Tax on nonresident alien individuals ). This kind of income is not taxed by the US. Further details: Non-resident alien: Why did I pay no tax on dividend income? What are the taxation rules for US non-resident aliens with respect to qualified dividends? Note: that question is about "qualified dividends" which is irrelevant to your question, but one of the answers there explains "portfolio interest" and "qualified interest income".