Can You Hold US Stocks in a TFSA? The Withholding Tax You Can't Get Back

Nothing stops you from buying US stocks in a TFSA. The account holds them, the trades clear, and the capital gains grow tax-free. The catch is dividends. The United States withholds 15% of every US dividend before it reaches your TFSA, under Article X(2)(b) of the Canada-US tax treaty, and because TFSA income is exempt from Canadian tax, there is no Canadian tax to credit the withholding against. That 15% is gone. A $1,000 US dividend pays you $850, and the $150 doesn’t come back on any return.

Can I buy US stocks in my TFSA?

Yes. A TFSA can hold US-listed stocks, US-listed ETFs, and Canadian-listed ETFs that hold US stocks. The account’s eligible investments include securities listed on a designated stock exchange, and the NYSE, NASDAQ, and other major US exchanges are on the CRA’s list of designated stock exchanges. Your brokerage may require you to hold US-dollar securities in a US-dollar TFSA sub-account, which most large Canadian brokerages offer.

The tax question isn’t whether the TFSA can hold US stocks. It’s whether the TFSA is the right place for them, and the answer depends on whether those stocks pay dividends.

Are US dividends taxed in a TFSA?

Yes, at 15%. The United States treats a TFSA as an ordinary Canadian trust, not a pension fund, and withholds tax on dividends paid to it under the same rules that apply to any non-resident. Article X(2)(b) of the Canada-US tax treaty sets the withholding rate at 15% of the gross dividend amount for portfolio holdings (those where the beneficial owner holds less than 10% of the voting stock). Without the treaty, the US default rate under IRC 871(a) would be 30%.

The withholding happens before the dividend reaches the account. Your Canadian brokerage or its US custodian deducts the 15% and remits it to the IRS. What lands in your TFSA is the after-tax amount.

Why can’t I claim a foreign tax credit for US withholding in my TFSA?

Because there is no Canadian tax to credit it against. A foreign tax credit under ITA 126 reduces Canadian tax you owe on foreign-source income. Inside a TFSA, that income is exempt from Canadian tax under ITA 146.2, so the credit has nothing to offset. The 15% US withholding is a real, permanent cost that reduces the effective return on US dividend-paying stocks held in the account.

In a non-registered (taxable) account, the same 15% is withheld, but you report the gross dividend as income on your Canadian return and claim the 15% as a foreign tax credit. The withholding comes back. In a TFSA, it doesn’t.

Account	US withholding on dividends	Can you recover it?
Non-registered	15% (treaty rate)	Yes, via foreign tax credit on your Canadian return
RRSP	0% (treaty pension exemption)	Nothing to recover, no withholding applied
TFSA	15% (treaty rate)	No, TFSA income is tax-exempt so there is no Canadian tax to credit against

Does the RRSP have the same US withholding problem?

No, and that’s the key comparison. The RRSP qualifies as a pension fund under the treaty’s provisions at Article XVIII, and US dividends paid to an RRSP are not subject to US withholding tax. The gross dividend lands in the account without a 15% deduction.

The TFSA doesn’t qualify. Article XVIII covers pensions and retirement arrangements, and the TFSA was created in 2009 without ever being added to the treaty. It isn’t a pension, it isn’t an annuity, and it isn’t a retirement arrangement under the treaty’s definitions. So the standard Article X dividend rate applies, and 15% is withheld.

This single difference changes the math on which account should hold what. A US stock yielding 2% in an RRSP keeps the full 2%. The same stock in a TFSA keeps 1.7% after withholding. Over decades of compounding, the 0.3% drag on each year’s dividends adds up.

What about Canadian-listed ETFs that hold US stocks?

The withholding still applies, and it’s harder to see. A Canadian-listed ETF that holds US stocks (like an S&P 500 tracker listed on the TSX) is itself a Canadian trust. When the US companies in the ETF’s portfolio pay dividends, the US withholds 15% from those dividends before they reach the ETF. The ETF receives the net amount and distributes from there.

Whether you hold the Canadian-listed ETF in a TFSA, an RRSP, or a non-registered account, the 15% US withholding at the ETF level is already embedded in the fund’s returns. The difference is what happens at the next level:

What you hold	Where you hold it	US withholding at the fund level	US withholding at your level	Can you recover any of it?
Canadian-listed ETF holding US stocks	TFSA	15% (embedded in fund returns)	None (ETF distributes Canadian income)	No: the fund-level withholding is embedded and the TFSA has no FTC
Canadian-listed ETF holding US stocks	RRSP	15% (embedded in fund returns)	None	No: the fund-level withholding is embedded
Canadian-listed ETF holding US stocks	Non-registered	15% (embedded in fund returns)	None	Partially: the ETF flows through foreign tax paid, and you claim the FTC
US-listed ETF (e.g. VTI, VOO)	TFSA	n/a (no fund-level layer)	15% (withheld from dividends paid to TFSA)	No
US-listed ETF	RRSP	n/a	0% (treaty pension exemption)	Nothing to recover
US-listed ETF	Non-registered	n/a	15%	Yes, via FTC

The bottom row is why US-listed ETFs in the RRSP are the most withholding-efficient structure for US equity exposure. The treaty exemption eliminates the withholding entirely, and there’s no fund-level layer to absorb it.

Should I hold US dividend stocks in my TFSA or somewhere else?

The RRSP is the better home for US dividend-paying stocks, and the TFSA is the better home for everything else. That’s the allocation rule the withholding math produces.

Use the RRSP for US-listed ETFs and US stocks that pay dividends. The treaty pension exemption means no US withholding, so the full dividend compounds inside the account.

Use the TFSA for Canadian equities (no US withholding issue), US growth stocks that don’t pay dividends or pay negligible ones, GICs, bonds, and any holding where the dividend yield is too small for the withholding to matter.

This isn’t a rule about what the TFSA can hold. It’s a rule about what it costs, and the cost is proportional to the US dividend yield. A US tech stock yielding 0.3% loses less than $5 per $10,000 per year to withholding. A US REIT or utility yielding 4% loses $60 per $10,000. Same account, very different numbers.

What about US stocks that don’t pay dividends?

No withholding problem at all. US withholding tax applies to dividends and certain other types of income (interest, royalties). Capital gains on US stocks are not subject to US withholding when the holder is a non-resident. A US growth stock that pays no dividend generates only capital gains, and those gains accrue inside the TFSA with no US tax consequence.

This is why the TFSA is fine for a concentrated US growth position. The withholding issue is specific to dividend income, and a stock that doesn’t distribute any sits outside it entirely.

What if I’m also a US citizen or green card holder?

The withholding question above is the Canadian-only side. If you’re a US citizen, a US green card holder, or anyone else the IRS considers a US person, the TFSA has a second, larger problem: the IRS doesn’t recognize it as tax-free, and may treat it as a foreign trust requiring Form 3520 and Form 3520-A every year. Income inside the TFSA, dividends, interest, and capital gains, is taxable on your US return, and the account may also trigger FBAR and Form 8938 reporting. For a US person in Canada, the withholding drag is the smaller issue; the compliance burden is the bigger one.

If you hold Canadian mutual funds or Canadian-listed ETFs inside the TFSA and you’re a US person, those holdings are likely PFICs as well, and the punitive PFIC tax regime applies on top of everything else.

What should I do next?

Check what’s actually inside your TFSA and what it yields. If your US equity position is paying meaningful dividends (anything above 1-2% yield), the math favours moving it to the RRSP and backfilling the TFSA with Canadian equities or growth holdings. The swap doesn’t change your total portfolio; it just puts each holding in the account where the tax cost is lowest.

• Is a TFSA a foreign trust?, if you’re a US citizen or green card holder
• PFIC-safe investments for US citizens in Canada, if you need to restructure away from Canadian-listed ETFs
• Does a Roth IRA stay tax-free in Canada?, the mirror question for Americans

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.