Question of the Week: Do I have to pay tax on US stocks I own in my TFSA?

While monitoring investing groups on social media and the internet we’ve seen several investors asking questions around taxes and US stocks held in a TFSA.

A TFSA is a tax-free savings account. All Canadian investments held in a TFSA are not taxed when withdrawn, nor are the gains made on these investments taxed. However, this does not apply to U.S. stocks held in a TFSA.

U.S. stocks held in a TFSA are subject to a 15 percent withholding tax on dividends. You likely will not see this withholding tax on your TFSA statements. The withholding tax is typically applied before you receive your dividends.

For example, if you were to receive $100 in dividends from a U.S stock held in your TFSA your statement would show $85 in dividends paid, with the $15 already withheld. Again, you may not see the tax being taken off, but it is. Make sure you take this tax into consideration when planning your investment portfolio, so you know exactly how much you are making on your foreign investments.

You will not be able to claim any tax credit for US withholding taxes on stock held in your TFSA. Prior to holding US stocks in your TFSA, you should consult with a tax professional.