Money, Modeled
Accounts & tax

The 15% leak: US dividends in your TFSA

November 7, 20264 min read

Hold a US stock or a US-listed ETF in your TFSA, and every dividend arrives 15% lighter. The money goes to the IRS as withholding tax, and in a TFSA you can't get it back.

Why it happens

The Canada–US tax treaty sets a 15% withholding tax on US dividends paid to Canadians. In a taxable account, you can usually claim a foreign tax credit to offset it. In an RRSP, the treaty recognizes the account as a retirement plan, so US-listed holdings pay no withholding at all. The TFSA isn't recognized under the treaty, so the 15% is withheld and there's no Canadian tax to credit it against.

How much does it cost?

$50,000 in a US-listed ETF yielding 1.3% pays $650 a year in dividends. 15% of that is $97.50 a year lost. On a growth fund with a low yield, the drag is small. On a high-dividend fund yielding 4%, the same $50,000 loses $300 a year.

The drag is 15% of the yield, not 15% of your return. For broad US index funds with low yields, it's often around 0.2% a year: real, but small enough that it shouldn't stop you from owning US stocks.

Ways to reduce it

  • Put US dividend payers in your RRSP where possible, and keep Canadian stocks or low-yield growth holdings in the TFSA.
  • Know the RRSP exception. Only US-listed funds held directly in an RRSP avoid withholding. A Canadian-listed ETF that holds US stocks still has 15% withheld inside the fund, even in an RRSP.
  • Don't over-optimize. Account placement matters less than saving consistently and keeping fees low.

Tax rules can change and depend on your situation. Education only, not financial, tax or investment advice. Numbers are illustrative; check your own situation, or speak with a licensed professional.