Investing US stocks in a TFSA

jackisbuying wrote: ↑ 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).

komodor wrote: ↑ 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 $.

fogetmylogin wrote: ↑ This assumes all your investments are US dividend stocks (not a good idea in any situation).

Best to use TFSA for other investments.