What is the tax impact of investing in the Dow with my TFSA?

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I would like to buy some US stocks, how does this affect my TFSA, or should i invest outside of it?

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Asked on January 2, 2021 11:00 am
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The IRS doesn't deem the TFSA a retirement style account, and as such you'll have to pay taxes on the dividend payments coming from a US company inside of your TFSA.

Whereas in an RRSP, the IRS and Canada have an agreement that foreign dividends earned inside of an RRSP will be exempt from the withholding tax.

Therefore, the best option to hold U.S. dividend paying stocks would be your RRSP. However, whether or not contributions to your RRSP would be beneficial for you is a completely different story.

So, IF you're in a position to take advantage of the tax benefits of an RRSP and are looking to purchase some U.S. dividend paying stocks, the RRSP is best.

Capital gains however are the same in any account. The capital gains you earn on a U.S. stock in your TFSA will be tax free. It's JUST the withholding tax on the dividends.

All tax considerations aside however, if we narrow your question down to the true basics that you're asking for, a TFSA would pretty much always be best. If you have room in a tax sheltered account, it's going to be more beneficial to hold investments inside of that account.

The only thing I'd personally own in a taxable account if I still had room in a tax sheltered account are hyper-aggressive growth stocks. Primarily because I'd be able to claim capital losses in the event they didn't work out, and I wouldn't lose critical TFSA contribution room.

I have to reiterate though, we aren't tax experts here. Every persons situation is different, and although we're knowledgeable when it comes to taxes on investments, we aren't knowledgeable with your current situation, which makes it impossible to direct accurate advice.

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Posted by Dan Kent
Answered on January 2, 2021 1:00 pm