Personal Finance

How do capital gains taxes work when trading U.S. stocks in TFSA?

  • Last Updated:
  • Jun 14th, 2021 11:59 pm
[OP]
Member
Dec 29, 2014
303 posts
171 upvotes
Toronto, ON

How do capital gains taxes work when trading U.S. stocks in TFSA?

I trade some U.S. stocks in my TFSA brokerage account. Will I need to declare gains from U.S. stocks?
11 replies
Deal Addict
Jan 19, 2017
4843 posts
2795 upvotes
Striker60 wrote: I trade some U.S. stocks in my TFSA brokerage account. Will I need to declare gains from U.S. stocks?
If you are doing a lot of trading, then your profit won’t be considered capital gain, but regular income. Otherwise, any profit will be tax free. TFSA = tax free saving acct.
Deal Addict
Feb 6, 2005
1594 posts
246 upvotes
Toronto
ml88888888 wrote: If you are doing a lot of trading, then your profit won’t be considered capital gain, but regular income. Otherwise, any profit will be tax free. TFSA = tax free saving acct.
how frequent is frequent?
Newbie
Jul 28, 2019
29 posts
28 upvotes
You can probably find many old threads about this its been covered many times.
Day trading is out 100%.

Basically its a grey area exactly what you will be picked for so to avoid them you better not trade frequently and don't buy sell and churn the same stock that would likely be determined to be a business.
CRA probably uses software to see high frequency trading and making higher amounts. You do not want to be on their radar.


Better description is something like this.

The CRA prohibits a user from carrying a business inside the TFSA. Thus, day traders, beware. High-frequency trading raises alarm bells. The CRA conducts random audits to catch anyone abusing the account and making quick profits by buying and selling stocks.
Once the CRA suspects you of generating business, not investment income, it will flag your TFSA. The tax agency will stop you in your tracks and charge heavy penalties if found guilty. Remember, income in a TFSA that is within bounds is non-taxable.
However, the CRA considers income from day trading or frequent trading as regular income, and, therefore, everything will be taxed. Don’t try your luck or risk the ire of the CRA. Some rule breakers are even brought to court.
[OP]
Member
Dec 29, 2014
303 posts
171 upvotes
Toronto, ON
ml88888888 wrote: If you are doing a lot of trading, then your profit won’t be considered capital gain, but regular income. Otherwise, any profit will be tax free. TFSA = tax free saving acct.
Are you sure? I heard that the U.S. doesn't recognize TFSAs as registered accounts and the IRS will tax capital gains and dividends on any U.S. stock. I don't trade that frequently but I do buy some U.S. stocks.
[OP]
Member
Dec 29, 2014
303 posts
171 upvotes
Toronto, ON
DealsRus4eva wrote: You can probably find many old threads about this its been covered many times.
Day trading is out 100%.
I usually hold stocks for at least a few months. Every now and then I will sell after a few days or on the same day but I don't think this is considered day trading.

My question is specifically about U.S. stocks though. Are they not treated differently when traded in a TFSA?
Deal Addict
Mar 3, 2018
2129 posts
2134 upvotes
GTA
Striker60 wrote: Are you sure? I heard that the U.S. doesn't recognize TFSAs as registered accounts and the IRS will tax capital gains and dividends on any U.S. stock. I don't trade that frequently but I do buy some U.S. stocks.
Capital gains on US stocks are taxed by the country you are resident in by tax treaty with the US. Since TFSA's are tax free in Canada capital gains are not applicable. Dividends though on US stocks will be subject to US withholding tax usually 15% if in a TFSA.
[OP]
Member
Dec 29, 2014
303 posts
171 upvotes
Toronto, ON
DaveTheDude wrote: Capital gains on US stocks are taxed by the country you are resident in by tax treaty with the US. Since TFSA's are tax free in Canada capital gains are not applicable. Dividends though on US stocks will be subject to US withholding tax usually 15% if in a TFSA.
Thanks this was the information I was looking for.
Newbie
Jul 28, 2019
29 posts
28 upvotes
I think this was on a thread last week, don't forget about dual listed stocks for USD. Not sure if that's your intention to get USD.

You can buy in CAD (TSX stock) and travel (change over) to USD side (NYSE/ NASDAQ) if they are dual listed.

I personally like to do this with AQN (ALGONQUIN) as I have on US side, so all my dividends are in USD. In addition they have a treasury drip with AQN where you get a small discount on the drip each time you reinvest buying the new share.
The best part is it does not fall into US withholding tax, as its a Canadian company domiciled in Canada.

Hope that helps.

PS My "smart investment friends" say if you are trying for USD RRSP is a good fit if you are mostly going for USD through long term dividends. If your intention is just capital gains, the small dividends on Microsoft/ Apple / many other stocks is so small 15% off nothing isn't that big a deal.
[OP]
Member
Dec 29, 2014
303 posts
171 upvotes
Toronto, ON
I didn't see that thread. If a stock is listed on both TSX and NYSE/NASDAQ, I'll buy it on TSX. I prefer to stick with the TSX but there are some stocks that I want to buy that are not on the TSX.

If I understand correctly, the U.S. withholding tax means that they take 15% of all dividends earned. Is this correct?
Deal Addict
Mar 3, 2018
2129 posts
2134 upvotes
GTA
Striker60 wrote: If I understand correctly, the U.S. withholding tax means that they take 15% of all dividends earned. Is this correct?
Correct 15% withholding tax on US dividends paid. Normally in a non registered account it is not a big deal as you can claim it back as a foreign tax credit on your Canadian tax return. But when US dividends are paid to a TFSA account you can't claim the credit as the dividends are not taxable in a TFSA.

Generally if you can have your US dividends in either a non registered or an RRSP account. There is no US withholding tax on dividends paid to RRSP accounts.
Newbie
Jul 28, 2019
29 posts
28 upvotes
Striker60 wrote: I didn't see that thread. If a stock is listed on both TSX and NYSE/NASDAQ, I'll buy it on TSX. I prefer to stick with the TSX but there are some stocks that I want to buy that are not on the TSX.

If I understand correctly, the U.S. withholding tax means that they take 15% of all dividends earned. Is this correct?

Ok I found the thread for you.
https://forums.redflagdeals.com/algonquin-power-utilities-corp-aqn-2331202/8/#p34496473

Just to summarize and so no misinformation incase someone comes back to read it. US companies 15% withholding taxes and cannot get back when held in a TFSA (RRSP no 15% taken).
Not only US companies pay USD though and many Canadian companies do most of their accounting in USD.

Canadian companies that pay in USD (there are a few but the only ones that come to mind are Barrick Gold (ABX/ Gold), AQN, maybe OPEN TEXT?
Anyways they pay dividends in USD, when you receive via TSX in Canada you are getting a converted rate into CAD. In my humble opinion it is to your advantage to receive USD in these stocks or other as they are tax preferred "eligible for Canadian dividend tax credit".
It means no 15% is withdrawn as mentioned as they are NOT "American companies" and not applicable to 15% withholding tax.
To each their own, but as previously mentioned if you are going to hold any of these stocks, its preferred to get USD, bigger market for you to buy things with later down the road without exchanging funds etc.

On a sidenote make sure you are familiar with "Norbert's gambit". If you are buying dual listed you can skip the etf way they follow and just do with dual listed stocks.

Good luck.

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