Asked
Can someone explain to me the pros and cons of holding US stocks in my TFSA? Is there different taxes I have to pay on it? I'm wondering why I was told just to hold Canadian stocks and ETFs within it.
The US stock market is much more lively in the Canadian. Just want to have a bit more information before I make the leap.
Clint’s answer
TFSA: American or any foreign country with an organized tax system will tax income at the source. For example dividends declared and paid will be taxed at 15% as a withholding tax in the US. This includes RRSPs too, however... Any country that Canada has a tax treaty with will allow for a foreign tax credit to be applied against taxable income... The TFSA, being not a taxable gain would not qualify for this and one would have to eat the tax withholding unless they applied (and were approved) to the US to get a portion back.
RRSPs being taxable upon withdrawal would technically qualify to have the FTC credit applied.
Obviously a disadvantage for you being taxed, however the advantages might outweigh this relatively small amount of tax, diversification being one and large capital gains vs small dividends might be another, for example in a good American tech company. Capital gains in American stocks do not generally have withholding tax. Speaking to an investment advisor would be a great idea too.
January 19, 2024
From Ask Clint: real questions from a Canadian public finance forum, answered by Clint Cole. Names are changed. This is general information, not advice for your situation, and rules and dollar figures may have changed since Clint answered. Terms