Investing

Investing US stocks in a TFSA

  • Last Updated:
  • Mar 14th, 2019 5:04 pm
[OP]
Newbie
Jan 28, 2017
43 posts
33 upvotes

Investing US stocks in a TFSA

I am trying to determine the benefits and downsides of holding US Stocks in a TFSA.

As I understand it, my dividends will have a withholding tax, but I am unclear if it is 15% or 30%. If held in a TFSA, the foreign tax credit will not be applicable.

Capital gains will not be taxed since it is held in a TFSA.

So if I have a small portfolio, and don't make much money on dividends, would it make sense to hold US stocks in a TFSA? I would be taxed heavily on the dividends, but holding a few stocks wouldn't amount to much money. I would not be taxed on the capital gains, which for long holds would be more beneficial.

Do I have this right, or am I completely lost?

(Info received from a few sources, including here).
6 replies
Sr. Member
User avatar
Aug 7, 2010
849 posts
226 upvotes
jackisbuying wrote:
Mar 13th, 2019 11:42 am
I am trying to determine the benefits and downsides of holding US Stocks in a TFSA.

As I understand it, my dividends will have a withholding tax, but I am unclear if it is 15% or 30%. If held in a TFSA, the foreign tax credit will not be applicable.

Capital gains will not be taxed since it is held in a TFSA.

So if I have a small portfolio, and don't make much money on dividends, would it make sense to hold US stocks in a TFSA? I would be taxed heavily on the dividends, but holding a few stocks wouldn't amount to much money. I would not be taxed on the capital gains, which for long holds would be more beneficial.

Do I have this right, or am I completely lost?

(Info received from a few sources, including here).
15% withholding tax if Form W8-BEN submitted. The foreign tax is indeed unrecoverable in a TFSA. However this shouldn't be your main criteria for deciding whether or not to hold US stocks in your TFSA. Dividends from US sources being taxed at your marginal rate, that's what you have to consider. So unless your combined (Fed + provincial) marginal rate is lower than 15% (break even point), you are ok keeping US stocks in your TFSA. See example below, assuming a dividend of $100.

Total taxes incurred in TFSA: 0% (Fed + prov) + 15 % (withheld by US) = 15 % . Net in your pocket: 85 $
Total taxes incurred in non registered account: 16% (combined marginal rate) + 0 % (withheld tax recovered) = 16 %. Net in your pocket 84 $.
Member
Jun 18, 2018
323 posts
121 upvotes
Or you could always invest in US stocks that don't have any dividends...and there are plenty of good ones that don't
Deal Addict
Nov 13, 2013
1537 posts
594 upvotes
Ottawa
komodor wrote:
Mar 13th, 2019 7:44 pm
15% withholding tax if Form W8-BEN submitted. The foreign tax is indeed unrecoverable in a TFSA. However this shouldn't be your main criteria for deciding whether or not to hold US stocks in your TFSA. Dividends from US sources being taxed at your marginal rate, that's what you have to consider. So unless your combined (Fed + provincial) marginal rate is lower than 15% (break even point), you are ok keeping US stocks in your TFSA. See example below, assuming a dividend of $100.

Total taxes incurred in TFSA: 0% (Fed + prov) + 15 % (withheld by US) = 15 % . Net in your pocket: 85 $
Total taxes incurred in non registered account: 16% (combined marginal rate) + 0 % (withheld tax recovered) = 16 %. Net in your pocket 84 $.
This assumes all your investments are US dividend stocks (not a good idea in any situation).

Best to use TFSA for other investments.
Deal Addict
Dec 11, 2007
1821 posts
371 upvotes
Markham
Ignoring dividend gross up for retirement benefits calcs, if your choice is solely between TFSA or non-reg, then its better to have USD in TFSA and CAD in non-reg. The overall tax is marginally better in almost all situations in all but a few provinces vs the alternative (CAD in TFSA, USD in non-reg). But if you also have RRSP, then that should be where the USD stuff goes first, unless the stock either 1. pays no dividend and is unlikely to pay one in the near future, or 2. pays a dividend that isnt withheld (yes, there are some)
Sr. Member
User avatar
Aug 7, 2010
849 posts
226 upvotes
fogetmylogin wrote:
Mar 14th, 2019 6:02 am
This assumes all your investments are US dividend stocks (not a good idea in any situation).

Best to use TFSA for other investments.
I was assuming nothing. I was directly answering his question that was explicitly referring to US stocks and dividends.

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