Thursday, October 15, 2020

Investing U.S. stocks in a TFSA

 Here is the article. 

Canadian dividends and interest are specifically tax-free in a TFSA, when earned, when withdrawn, whenever. Non-Canadian dividends, including those paid by U.S. blue chip stocks, are subject to withholding tax in a TFSA.

The IRS levies a withholding tax of 15% on dividends paid to Canadian resident investors. Whether you own U.S. stocks directly in your TFSA or you own a Canadian mutual fund or exchange-traded fund (ETF) that owns U.S. stocks, the result is the same.

If you have an RRSP, a TFSA and a non-registered account, you may be better off with your TFSA in U.S. stocks despite the 15% tax withholding. As an example, U.S. stocks are taxed at a 21% higher tax rate in a non-registered account than Canadian stocks for someone earning $75,000 in British Columbia (more tax than the 15% withholding tax in a TFSA). And I’d rather see someone with their fixed income in their RRSP than their TFSA or non-registered account. You’ll pay less tax today and tomorrow because a smaller RRSP means less tax on withdrawals – grow your more tax-efficient TFSA and non-registered assets instead.

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