Q&A: U.S. Dividends Paid to TFSAs

A reader wants to know how they are treated by Canadian and U.S. authorities when it comes to TFSAs.


Q – What are the tax considerations, both U.S and Canadian, if one (a) buys a U.S stock and (b) receives a dividend from that U.S stock, all to be held in a TFSA? – Michael H.


A – From the perspective of the Canada Revenue Agency, there is no tax due. All transactions within a TFSA are tax-sheltered and all withdrawals are tax-free.

However, the U.S. Internal Revenue Service (IRS) has a different approach. You’ll be hit with a 15% withholding tax on your U.S. dividends, even though they are paid into a TFSA, and you cannot claim a foreign tax credit for that amount. It’s lost. Only RRSPs, RRIFs, LIRAs, and LIFs are exempt from the withholding tax. – G.P.


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