US dividends in a TFSA: why 15% is withheld

What happens when a US company pays a dividend into your TFSA?

The US taxes dividends that US companies pay to foreign investors, and it collects that tax by withholding it before the cash leaves. For a Canadian resident, the Canada–United States Tax Convention (the treaty) generally limits that withholding to 15% on portfolio dividends. Without treaty documentation, usually a W-8BEN on file with your brokerage, the US statutory rate is 30%.

So if a US company pays $100 of dividends to your TFSA, about $15 is withheld and $85 arrives. The TFSA itself doesn’t change that: from the US point of view, the account is simply a Canadian investor.

Withholding happens before the payment reaches your account, so the amount you see credited is already net of US tax. There is no separate bill and nothing to claim for the TFSA at tax time, which is exactly why the cost is easy to miss.

Why can’t you get the 15% back?

In a non-registered account, you can generally claim a foreign tax credit on your Canadian return for US tax withheld, which offsets Canadian tax on the same income. Inside a TFSA, there is no Canadian tax on the dividend to offset, so there is nothing to claim against. The withholding becomes a permanent cost.

The treaty does have an exemption for retirement plans (Article XXI(2)), which is why RRSPs and RRIFs are treated differently. It covers arrangements “operated exclusively to administer or provide pension, retirement or employee benefits.” A TFSA isn’t that kind of arrangement, and neither is an RESP or an FHSA. That is the widely applied reading of the treaty text; we have not found an IRS or CRA statement that says it in so many words.

What does it cost? Simple arithmetic

The cost is easy to estimate: 15% of the US dividends the account receives. These are hypothetical round numbers, not a forecast.

How does a TFSA compare with other accounts?

The non-registered row has its own trade-off: the dividend is fully taxable in Canada, like interest, with no dividend tax credit. The foreign tax credit page shows the full calculation.

What about Canadian-listed funds that hold US stocks?

If a Canadian-listed fund owns US shares, US withholding can apply inside the fund, when the US companies pay dividends to it, before anything is distributed to you. How much applies, and whether any of it can be recovered, depends on how the fund is structured and what account you hold it in.

We can’t generalize further than that. The fund’s own documents are the place to check, and a qualified tax professional can help if the amounts matter to you.

How does the cost add up over time?

Because the withholding repeats with every payment, it compounds quietly. A hypothetical TFSA that receives $1,000 of US dividends a year loses $150 a year, or $1,500 over 10 years, before counting any growth that money might have earned if it had stayed invested. If the dividends grow, the amount withheld grows with them, because it is always 15% of what is paid.

None of this makes a TFSA the wrong or right place for any holding. It’s one input among several, alongside contribution room, how soon you may need the money, and how much of the expected return comes from dividends rather than price changes. The total return vs dividend yield guide explains that last distinction.

How can you see the withholding on your statements?

On a TFSA statement, a US dividend may show up as two lines: the dividend itself and a separate line for US tax withheld, or a single net amount. If you can only see the net amount, divide it by 0.85 to estimate the gross dividend at the 15% treaty rate. If the net amount is 70% of what you expected rather than 85%, that suggests 30% was withheld, and it’s worth asking your brokerage whether your treaty documentation is current.

What to check before comparing accounts

• Is treaty documentation on file? If a statement shows 30% withheld rather than 15%, ask your brokerage about it.
• Which account holds what? The same US dividend is treated three different ways in an RRSP, a TFSA and a non-registered account.
• Is withholding the only factor? Contribution room, withdrawal rules and your time horizon all matter too. The US dividends in an RRSP page covers the other side.