# TFSA - investing in US stocks



## Kalergie (Jan 7, 2011)

Hi everyone. 

I am a new member and am glad to have found such an informative forum. I am looking forward to reading through the valuable topics available here. 

I am interested in a long term investment of reputable US companies. Let's take the example of GE. This might be a silly question but since GE is a US company, does my account have to be in US funds? 

Thanks for your help.

Pascal


----------



## onomatopoeia (Apr 8, 2009)

Questrade allows you to maintain a Canadian and/or us balance in your account. if you purchase a US stock with only canadian dollars it settles at the end of the day with a currency conversion from cad->US.


----------



## Homerhomer (Oct 18, 2010)

I would advise against US stocks in TFSA since you will be slapped with witholding tax on any US dividends, better keep US stocks in RRSP and Canadians once in TFSA.


----------



## humble_pie (Jun 7, 2009)

yes homer is right.

there are several threads dealing with the US 15% withholding taxes on dividends from US companies like GE when an investor holds these in a TFSA.

TFSA is about the worst kind of account in which to hold US dividend payors. Investor will lose the tax outright & will not be able to claim any foreign tax credit for it, as he could & would if he held the same US stock in a cash or margin account.

meanwhile, it's worth noting that dividends from US stock held in an RRSP account do *not* attract US withholding tax, due to the provisions of the canada-US tax convention.

for this reason - exemption from US 15% withholding tax - some canadians choose to keep their US holdings strictly in their RRSP accounts.

kalergie for your TFSA, it's possible you might decide that the merits of US dividends are sufficient enough to outweigh the loss of 15% through US withholding tax. But at least you should know that the tax exists.

your long-term plan sounds great. Please keep in mind that non-registered accounts holding US securities in US dollars can be maintained at any broker, not just at questrade. What questrade has especially accomplished is maintenance of US positions in US dollars in registered accounts. This is a breakthrough. One or 2 other brokerages - i believe RBC is among them - have followed suit. All the rest are working on this feature as demand for rrsp reform on US dollar holdings is high.


----------



## Sampson (Apr 3, 2009)

humble_pie said:


> kalergie for your TFSA, it's possible you might decide that the merits of US dividends are sufficient enough to outweigh the loss of 15% through US withholding tax.


The TFSA might not be a good place for US stocks that pay sizable dividends, but those that don't pay dividends... 

And as Humble points out, the 15% tax can at times be outweighed by the tax free growth.


----------



## Argonaut (Dec 7, 2010)

I agree with the consensus about holding Canadian stocks in a TFSA and US stocks in a non-registered account or an RRSP. A pipeline, a telco, or a REIT are perfect choices for a TFSA. Collect bills, pay shareholders.. collect bills, pay shareholders.

Anyone know what the tax laws are for dual citizens? I'm thinking I might avoid the withholding tax if I fill out a W-8 form or something. I'm too young and don't make enough money for an RRSP account to be worth opening, so looking for benefits of being a US dual citizen in other accounts.


----------



## fortunate_son (Jan 3, 2011)

If it's just a question of holding US stocks in a TFSA vs a non-registered account, aren't you better off putting them in your TFSA? You can't claim the foreign tax credit in your TFSA, but in a non-registered account the dividends are taxed at your marginal rate. Not to mention that capital gains in your TFSA are tax-free.


----------



## Kalergie (Jan 7, 2011)

Well, thank you very much for the abundance of answers. 

Let me sum up your responses:

1) In general, I can invest in a US company even if my account is in CAD.
2) I may choose to have a USD account to invest in US companies.
3) At least with Questrade, I could open a TFSA in USD currency and invest in US positions.
4) A TFSA penalizes investors when receiving dividends by 15% on the dividends paid out by US companies. An RRSP does not.

Questions:

1) The TFSA room is CAD5,000 per year. Say, I open a Questrade account in USD, may I invest USD5,000 per year or only the equivalent of CAD5,000? 

2) I am not a Canadian citizen but have been a temporary resident with a SIN since June 2010. How much TFSA room am I allowed to utilize today? 

Thanks a tone for your help.

Pascal


----------



## Kalergie (Jan 7, 2011)

EDIT Kalergie. Sorry, the above post did not seem to have gone through so I thought I'd send it again. I deleted it.


----------



## Eclectic12 (Oct 20, 2010)

Kalergie said:


> Well, thank you very much for the abundance of answers.
> 
> Let me sum up your responses:
> 
> ...


First off, I suppose you can look at it as a penalty but it is more that the RRSP qualifies for an exemption from both Canadian tax and US with-holding tax. The TFSA also is exempt from Canadian tax but not from the US with-holding tax.

Secondly, since you say that you are a "temporary resident", I'm not sure that you are eligible for a TFSA. The Canada Revenue Agency (CRA) website says that "Starting in 2009, *Canadian residents* who are 18 years of age or older who are 18 years of age or older will be able to earn tax-free investment income within a Tax-Free Savings Account (TFSA) during their lifetime."

I'm thinking that likely this refers to permanent residents only. A quick check does not find a definitvie answer and am not a tax/residency expert, so it would be a good idea to check with CRA or an expert.

Here is the CRA TFSA link:
http://www.cra-arc.gc.ca/tx/rgstrd/tfsa-celi/bt-eng.html


----------



## Kalergie (Jan 7, 2011)

Hi and thanks for the answer.

Good point. I raised this quesion to my bank account officer at Scotiabank who claims to be this expert. Well, I take everything a banker says with a pinch of salt but he said I am eligible. Say, I open a TFSA, could CRA come back to me and say, I was not allowed to open one?

Pascal


----------



## atrp2biz (Sep 22, 2010)

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/lgbl-eng.html

Any individual (other than a trust) who is 18 years of age or older and who has a valid Canadian social insurance number (SIN) can be a holder of a TFSA.


----------



## Kalergie (Jan 7, 2011)

Well, that sounds pretty clear then. 

Thanks.

Pascal


----------

