Can You Hold US Stocks in TFSA?
Short Answer: Yes
| Allowed |
Details |
| US stocks |
Yes |
| US ETFs |
Yes |
| US bonds |
Yes |
| Other US securities |
Generally yes |
The Withholding Tax Issue
How It Works
| Account Type |
US Dividend Withholding |
| RRSP |
0% (tax treaty exemption) |
| TFSA |
15% (no exemption) |
| Non-registered |
15% (but foreign tax credit) |
Why TFSA Doesn’t Get the Break
| Reason |
Explanation |
| Tax treaty |
Only covers “pension” accounts |
| TFSA classification |
Not considered pension by US |
| Result |
15% withheld at source |
| Recovery |
Not possible |
Example: US Dividend in TFSA
| Item |
Amount |
| US dividend |
$100 |
| US withholding (15%) |
-$15 |
| Received in TFSA |
$85 |
| Can claim back? |
No |
Impact on Returns
Real Cost of Withholding
| US Dividend Yield |
After TFSA Withholding |
| 1% |
0.85% effective |
| 2% |
1.70% effective |
| 3% |
2.55% effective |
| 4% |
3.40% effective |
Long-Term Impact Example
| $100,000 US Dividend Stock |
TFSA vs RRSP |
| 3% yield = $3,000/year |
|
| In TFSA: receive $2,550 |
Lost: $450/year |
| In RRSP: receive $3,000 |
Lost: $0/year |
| Over 20 years |
~$9,000 difference |
What About Canadian-Listed US ETFs?
ETF Holding Structures
| ETF Type |
Withholding Impact |
| US ETF (listed in US) |
15% on dividends |
| Canadian ETF (holds US stocks) |
15% on dividends |
| Canadian ETF (holds US ETF) |
Up to 30% effective |
Layer Problem
| Structure |
Withholding |
| Direct US stock |
15% |
| Canadian ETF → US stocks |
15% |
| Canadian ETF → US ETF → US stocks |
15% + fees |
Best Practices for TFSA
What to Hold in TFSA
| Good Choices |
Why |
| Canadian stocks |
No withholding issue |
| Canadian ETFs of Canadian stocks |
No withholding |
| High growth US stocks |
If low/no dividend |
| International via Canadian ETF |
Varies |
What’s Better in RRSP
| Better in RRSP |
Why |
| US dividend stocks |
No withholding |
| US dividend ETFs |
Tax treaty applies |
| High-yield US |
Big difference |
Account Optimization Strategy
Where to Hold What
| Security |
Best Account |
| Canadian equities |
TFSA (no issue) |
| US dividend stocks |
RRSP (no withholding) |
| US growth stocks |
Either (little/no dividend) |
| International |
RRSP generally |
| Bonds |
TFSA or RRSP |
Example Portfolio
| Account |
Holdings |
| TFSA |
VCN (Canadian), growth stocks |
| RRSP |
VUN (US), international |
| Non-registered |
Canadian dividend stocks |
When US Stocks in TFSA Make Sense
Situations Where It’s Fine
| Situation |
Why OK |
| No RRSP room |
TFSA only option |
| Growth stocks |
Little/no dividends |
| RRSP maxed |
Extra money goes to TFSA |
| Simplicity |
Don’t want to optimize |
Growth Stock Example
| Stock Type |
TFSA Impact |
| Amazon (0% yield) |
No withholding issue |
| Google (0% yield) |
No withholding issue |
| High-growth tech |
Often no/low dividend |
Trading US Stocks in TFSA
Currency Considerations
| Issue |
Details |
| USD trading |
May need USD account |
| Conversion fees |
Broker dependent |
| Norbert’s gambit |
Can save on conversion |
| CAD-hedged ETFs |
Avoid USD complexity |
Broker Options
| Broker |
USD TFSA Account |
| Questrade |
Yes |
| Interactive Brokers |
Yes |
| TD Direct |
Yes |
| Wealthsimple Trade |
No (converts automatically) |
Conversion Fees
| Method |
Cost |
| Bank conversion |
1.5-2.5% |
| Broker auto-convert |
1-2% |
| Norbert’s gambit |
~0.2% |
| USD account |
No ongoing conversion |
Calculating the Real Impact
Is 15% Withholding Material?
| Portfolio Size |
US Allocation |
Yield |
Lost |
| $50,000 |
40% |
2% |
$60/year |
| $100,000 |
40% |
2% |
$120/year |
| $200,000 |
40% |
2% |
$240/year |
When to Care
| Portfolio |
Recommendation |
| Under $100K |
Don’t stress |
| $100K-$500K |
Consider optimizing |
| Over $500K |
Definitely optimize |
Summary Recommendations
Quick Decision Guide
| Situation |
Recommendation |
| Have RRSP room |
Put US dividend stocks there |
| TFSA only |
US stocks fine, accept withholding |
| US growth stocks |
TFSA is fine |
| Want simplicity |
All-in-one ETF either account |
| Maximizing returns |
Optimize account placement |
Bottom Line
| Fact |
Reality |
| Can hold US in TFSA |
Yes |
| Is it optimal |
Not for dividend stocks |
| Does it matter |
Depends on amounts |
| Simple approach |
Accept small drag |
| Optimal approach |
US dividends in RRSP |