Should You Put U.S. Stocks in Your TFSA? (2024)

FAQs

Should You Put U.S. Stocks in Your TFSA? ›

For non-dividend U.S. stocks, holding them in TFSA could be a smart choice. Like Canadian stocks, you won't pay a capital gains tax on U.S. stocks when you sell them for a gain. And unlike RRSPs, you won't pay taxes when you withdraw money from your TFSA before retirement.

Tax Treaty with the United States

A 15% tax will be deducted at source in the United States on US-based dividends paid to a TFSA. It should be noted that, under the tax treaty, interest income and capital gains earned on US securities by any person residing in Canada shall be taxable only in Canada.

Is there a U.S. side to a TFSA? Yes, you can hold and settle trades in U.S. dollars in your TFSA. You can also contribute and withdraw in U.S. dollars if you have an RBC U.S. dollar bank account. In this case, it is the equivalent Canadian dollar value that is recorded for reporting the amounts to the CRA.

For U.S. tax purposes, U.S. citizens are generally taxed on all of their income, even if derived outside of the U.S. Since the U.S. Internal Revenue Code (IRC) does not respect the tax shelter of the Canadian TFSA, all income earned inside the account is taxable, even if not withdrawn.

ETFs make some of the best TFSA investments. They are a low-cost way to gain instant exposure to a diversified portfolio of companies at a much lower cost than mutual funds. ETFs do not have the allure or potential for striking it big as picking individual stocks.

Yes, you can lose money on a TFSA, but it is easy to avoid losing your money. Typically, people who lose their money on a Tax-Free Savings Account are people who are using it for more volatile investments or people who are over-contributing.

Yes, if you are buying US stocks in Canada, you will be subject to capital gains taxes on any profits made. You'll be paying 15% withholding tax on dividends and 10% withholding tax on interest to the IRS.

The annual TFSA dollar limit for the year 2015 was $10,000. The annual TFSA dollar limit for the years 2016-2018 was $5,500. The annual TFSA dollar limit for the years 2019-2021 was $6,000. The annual TFSA dollar limit for the year 2022 is also $6,000.

If you sell stocks for a profit, you'll likely have to pay capital gains taxes. Generally, any profit you make on the sale of a stock is taxable at either 0%, 15% or 20% if you held the shares for more than a year, or at your ordinary tax rate if you held the shares for a year or less.

Do I need to report TFSA on US tax return? ›

If you have invested in one or more TFSAs, you generally have to report the TFSA on your U.S. taxes – usually on a form 8938 and accompanying FBAR -- and you do pay tax on the growth (even if it is non-distributed).

U.S. citizens who reside in Canada may establish registered accounts such as a RRSP, RESP or TFSA. However, the Canadian tax benefits arising from these registered accounts may potentially be offset by U.S. compliance obligations and/or applicable U.S. taxes.

The best TFSA investments and how to choose between investing in a TFSA and a registered retirement savings plan (RRSP) Your TFSA can generally hold the same investments as an RRSP. That means the best investment for TFSAs include cash, mutual funds, publicly traded stocks, GICs and bonds.

GICs in a TFSA

GICs or Guaranteed Investment Certificates allow you to do exactly that. They can be the ideal investment vehicle if you have a fixed-term savings goal like saving for a down payment. Plus, they generally offer a rate of return that's higher than most high-interest savings accounts.

Our response:

Growth on your investments inside a TFSA does not affect your contribution room, and you can take money out when you want, for any reason, without paying any tax. If you take money out, you can re-contribute it the following year, in addition to the annual maximum.

Capital Gains Tax

When you earn capital gains, there is no tax applicable in the US. Hence, if you buy shares worth say $500 and sell them for say $800, then there will be no tax liability in the US on the capital gain of $300.

How do I avoid capital gains tax on stocks in the US? ›

The primary benefit of owning U.S. stocks is diversification. By buying U.S. stocks, you can reduce the risk of your portfolio underperforming if your Canadian stock picks do poorly for an extended period of time. The Toronto Stock Exchange (TSX) and NASDAQ markets often take turns outperforming each other.

If you max out your TFSA by investing all of your savings into it at once, you may find yourself with a nice stock portfolio but no emergency fund. Additionally, there are certain investment objectives that are better served by keeping some of your assets outside a TFSA than by putting them all in the account.

The maximum starting contribution you should include is your TFSA contribution room minus the TFSA dollar limit for the current year ($6,500 for 2023), minus any other contributions you have made this year. Enter a value between $0 and $81,500.

If you want to buy US shares the US government will charge you a tax on any income you earn from those shares as you are not a US resident or citizen. Chances are you'd prefer to pay less of this tax (known as withholding tax) on your shares, which is where a W-8BEN form comes in.

With effect from 1 January 2023, non-US Persons will incur a 10% withholding tax on gross proceeds from sales or trading of US PTP securities.

The IRS allows you to deduct from your taxable income a capital loss, for example, from a stock or other investment that has lost money. Here are the ground rules: An investment loss has to be realized. In other words, you need to have sold your stock to claim a deduction.

Holding a volatile investment in a TFSA can be risky for a couple of reasons: First, if a capital loss is realized, that loss cannot be used to reduce other taxable capital gains you may have. Second, only the amount withdrawn can be added back to TFSA contribution limit the following year.

At one extreme, if you buy or sell a stock once a month there should be no problem. At the other extreme, if you are trading almost every day and holding stocks for only a few days at a time, that will be considered carrying on business and the TFSA will be taxed. So be careful about this!

Can I sell stocks in my TFSA? ›

While you can buy, sell, and hold stocks within a TFSA, day trading or overly frequent trading through a TFSA may be considered a business activity by the CRA and flagged for audit. As such, you may then have to pay income tax on your trading activity, defeating the purpose of a TFSA.

As it turns out, as long as you are a citizen or resident alien of the United States, you must file U.S. taxes if you meet the filing thresholds. This applies even if you have dual citizenship and pay taxes to another country or don't currently live in the States.

Do I still need to file a U.S. tax return? Yes, if you are a U.S. citizen or a resident alien living outside the United States, your worldwide income is subject to U.S. income tax, regardless of where you live. However, you may qualify for certain foreign earned income exclusions and/or foreign income tax credits.

Yes, if you are a citizen or resident alien of the United States, you have a U.S. tax obligation, even if you're a dual citizen of the U.S. and Canada. The U.S. is one of two countries in the world that taxes based on citizenship, not place of residency.

You may put any stock in your TFSA as long as it trades on a major market like the TSX, NASDAQ, or NYSE. There are numerous approved exchanges where you can purchase equities to trade on. You're not confined to simply Canadian or even North American equities.

Is it Worth Moving to the USA from Canada? Yes, absolutely! If you are looking for a better salary, more job opportunities, several tax benefits, affordable housing, and a vibrant lifestyle shifting to the USA from Canada is totally worth it.

If you hold a TFSA when you leave Canada, you can keep it and continue to benefit from the exemption from Canadian tax on investment income and withdrawals. However, you cannot contribute to your TFSA while you are a non-resident of Canada, and your contribution room will not increase.

There's no right number of stocks to hold in a TFSA, as it'll depend on your overall risk portfolio. However, it's hard to go wrong with five to 10 blue-chip stocks like TD that can generate both capital appreciation and dividend income.

Generally, interest, dividends, or capital gains earned on investments in a TFSA are not taxable either while held in the account or when withdrawn.

How much does the average Canadian have in TFSA? ›

Canadian dividend stocks are today's most suitable holdings in a Tax-Free Savings Account (TFSA) portfolio. Apart from the tax advantages (money growth and withdrawals), maximum capital gains are within reach with these three must-own dividend-payers.

Contrary to a TFSA, the main drawback is any interest you earn in a savings account is taxable income. That means you will have to report your capital gains on your tax return and pay taxes on them. Though, again, it's not much. As an example, at 1.5% per year, $5000 in a savings account will accrue $150.

For RSPs and TFSAs you can simply open a US$ component to your existing RSP or TFSA and then your U.S. trades can be completed in the US$ component of the account and avoid any foreign currency conversions. Simply call TD Direct Investing at 1-800-465- 5463 to have the US$ component opened.

With a self-directed TFSA, you are not restricted to the funds offered by your financial institution. You can invest in mutual funds, GICs, stocks, bonds, ETFs and more offered by just about any financial institution. As the account holder, you get to make all the decisions.

If you hold US stocks for more than 24 months, your gains on sale will be considered Long Term Capital Gains and will be taxed at 20% + surcharge and fees.

At any time in the year, if you contribute more than your available TFSA contribution room you will have to pay a tax equal to 1% of the highest excess TFSA amount in the month, for each month that the excess amount stays in your account. For more information, see Tax payable on excess TFSA amount.

As long as you are eligible, you can contribute every year to your TFSA for as long as you like. And you can maintain your TFSA for as long as you like — there is no requirement to withdraw assets or collapse your account by a certain age (like there is with an RRSP).

Certain types of precious metals can be held in a TFSA. Only gold and silver produced by the Royal Canadian Mint or a recognized metal refiner by the London Bullion Market Association can be held in a TFSA. Common types of gold and silver that can be held in a TFSA include: Canadian Silver Maple Leaf Coins.

How do I grow my TFSA? ›

Prohibited Investments

A prohibited investment is property to which the TFSA holder is closely connected. It includes any of the following: A debt of the holder. A debt or share of, or an interest in, a corporation, trust or partnership in which the holder has a significant interest–generally a 10% or greater interest.

If you max out your TFSA by investing all of your savings into it at once, you may find yourself with a nice stock portfolio but no emergency fund. Additionally, there are certain investment objectives that are better served by keeping some of your assets outside a TFSA than by putting them all in the account.

Long-term capital gains tax rates are 0%, 15% or 20% depending on your taxable income and filing status. Long-term capital gains tax rates are usually lower than those on short-term capital gains. That can mean paying lower taxes on stock sales.

Read this previous question to learn more. Trades within your TFSA can be made as often as you like, without having to pay a capital gains tax. However, note that conversely you cannot use capital losses on investments in your TFSA to offset the gains.