TFSA & Non-Resident Withholding Taxes

by Tax Guy - Burlington Accountant on February 28, 2011 Print This Post Print This Post

I have received a number of questions lately asking if withholding tax applies to foreign stocks held in the TFSA. The following explains how foreign withholding taxes are applied in the TFSA (and the RRSP & RRIF).

To understand the how this works, you first need to understand what withholding taxes are and how they are applied.

Most foreign countries apply a withholding tax on distributions of interest and dividends from countries located in their jurisdiction. In other words, the withholding tax has nothing to do with the exchange the shares are traded on.

Canada-U.S. Tax Treaty

The 5th protocol of the Canada-U.S. income tax treaty (or convention) contains provisions that reduce the withholding tax on interest to zero and dividends to 15%, when the recipient is one of the counties.

If a U.S. company pays a dividend to a person in Canada, the withholding tax is reduced to 15% from 30% and interest is not subject to U.S. withholding taxes.

Canada has treaties with many countries that also reduce the withholding tax.

Special Treatment For RRSP’s and RRIF’s

Under the Canada-U.S. tax treaty, interest and dividends received by an RRSP, RRIF, or other pension trust will not be subject to withholding tax by the U.S. However, don’t assume that every country Canada has a treaty with has the same provision!

Warning About ADR’s

If you decide to buy an American Depository Receipt (ADR) you are actually buying a stock or bond from a country that is NOT the U.S. As a result, withholding tax probably will apply to the investment income received by your registered account.

Furthermore, since your RRSP or RRIF is a tax-deferred account, you cannot claim the foreign tax credit.

No Mention of The TFSA

The TFSA is not a considered a pension trust under Canada’s treaty with the U.S. and therefore foreign dividends and interest would be subject to the normal withholding taxes under those treaties.

In addition, since the TFSA is a tax free account in Canada the foreign tax credit cannot be claimed for withholding tax applied to interest and dividends subjected to non-resident withholding taxes.

Still Hold U.S. Stocks In The TFSA

Even though, the dividends from your U.S. stocks will be reduced by 15% when received in your TFSA, it still make sense for you to hold them in the TFSA. Here is why.

The U.S. dividend will be reduced only 15%. If your combined federal-provincial marginal tax rate is more than withholding tax then the TFSA is the best place to hold this investment.

Looking For Professional Help?

If you’re looking for advice or tax planning services, you can contact me directly through my professional tax practice.

About The Tax Guy...

Dean Paley CGA CFP is a Burlington accountant and financial planner who services individuals and business owners locally, nationally and internationally. Dean has appeared in the National Post, Toronto Star and Metro News.

To find out more, visit Dean's website Dean Paley CGA CFP or connect via Twitter @DeanPaleyCGACFP.

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Darren March 2, 2011 at 1:27 pm

I hold a US Emerging Market ETF (VWO) in a non registered account. I only get a receipt for the 15% US withholding tax not what is paid to Brazil, China, etc by the fund.

If I swapped it into my RSP, would I still pay the 15% to USA?

Tax Guy March 2, 2011 at 4:14 pm

Assuming the 15% is the US tax then no. You may want to contact the ETF for more info or your broker.

Tax Guy March 2, 2011 at 9:06 pm

A REIT stands for “real estate investment trust.” Under the tax treaty distributions from a trust are not dividends and are not interest. They are considered straight income and would be subject to maximum withholding tax regardless of what kind of account you received the payments in (i.e. a TFSA or an RRSP.

If you received a REIT payment in an RRSP and There was no withholding tax, I suspect that the REIT was considered a corporation under US law.

Andi V March 2, 2011 at 9:38 pm

I cannot vouch for one or the other but these are well-known REITs: CIM, ANH. No tax under RRSP, 30% under TSFA.

Tax Guy March 2, 2011 at 9:57 pm

CIM appears to be a corporation. Also, be aware that US REITs and Canadian REITs are very different investments.

Cathy Wang February 16, 2012 at 1:43 am

If a non-resident senior wants to clear out his RRIF account, which is his only tie to Canada, does he have to file an income tax return? Would the bank be automatically withholding 25% tax and if so, does he still have to file a return?
Asking on behalf of a senior citizen who’s been living mostly in HK the past 10 years.
Your advice would be appreciated.

Tax Guy February 17, 2012 at 1:11 pm

What does this question have to do with the TFSA and non-resident withholding taxes? Please try and keep your questions on topic.

The withdrawal is subject to a 25% withhold at source and no need to file a Canadian return.

doug November 21, 2013 at 1:50 pm

There is confusion because of the definition of non-resident used in the question so here is a rephrasing:

If you have a Canadian TFSA account, and then emigrate to HK, will the bank need to withhold the 25% non-resident of Canada tax on the account (since you’re now a non-resident of Canada)?

Tax Guy - Burlington Accountant November 27, 2013 at 3:55 pm

For Canadian purposes, the TFSA is tax-free. There is no withholding on the distributions from the account.

The articles deals with non-resident withholding taxes on foreign shares held inside of a TFSA.

Mike August 16, 2012 at 5:30 pm

I own 100 shares of Oracle (ORCL.US) in each of two TFSA accounts, one at BMO InvestorLine and one at Questrade. On Aug. 3 the stock paid a dividend of 6 cents per share.

I recieved $6.00 in my InvestorLine account, and $5.10 in my Questrade Account. Based on your article above you’re saying Questrade is correct? I find it hard to believe a Big-5 bank would make this error.

Tax Guy August 16, 2012 at 8:17 pm

Hi Mike,

Questrade is correct and financial institutions do make mistakes. However, sometimes the brokerage may show the full dividend of $6.00 on one line and then show $0.90 as a separate line item.

If a mistake was made, they may figure it out eventually and collect it back from you. But, it is the brokers responsibility to withhold and not yours. I’d be inclined to wait and see what they do.

Cam March 11, 2013 at 3:14 pm

I own US shares of Hi Crush Partners LP Com Unit (HCLP) in my LIRA account with BMO. Last month I received a net dividend of $504.83 after a deduction of $199.91 in non-resident withholding tax.

Also, I own US shares of Transmontaigne Partners LP Co (TLP) in my RRSP. Last month I received a net dividend of $612.56 after a deduction of $242.57 non-resident withholding tax. Is this because the are an LP? Any help would be appreciated. Thanks!

Tax Guy - Burlington Accountant March 11, 2013 at 3:18 pm

Unfortunately limited partnerships are not covered by the treaty and are subject to the full US withholding (assuming these are US companies) at 35%.

There is nothing you can do other than file a US 1040NR.

Kristen March 25, 2013 at 12:23 pm


If I buy a US REIT in my RRSP, with I be charged withholding tax? (QI/NRT)


Burlington Accountants March 25, 2013 at 1:02 pm

Likely yes if it is organized as a trust. The withholding is 35%.

Kristen March 25, 2013 at 3:56 pm

Do you know if one would be charged NRT/QI for the following securities if held in an RRSP?

New Castle Investment Corp (NCT-US)
Hospitality Investment Trust (HPT-US)

Thank you!


Richard July 19, 2013 at 3:31 pm

I am a US citizen living in Canada, should I own US stocks in my corporate portfolio and my Holding account portfolio?

Thank you,


Tax Guy - Burlington Accountant July 21, 2013 at 2:56 pm

What you should hold would be determined your risk tolerance and asset allocation.

Justin Barracosa November 3, 2013 at 5:20 pm

Hello Tax Guy,
We have been trying to figure something out at another forum and are a bit stumped, perhaps you can lend your expertise to the matter?

As outlined, a Canadian resident is able to hold American stocks inside an RRSP and have his withholding tax reduced to 0%.

Are you able to comment on any other countries, (ADR’s) that offer similar special exemptions to WH tax, if held, for example, inside an RRSP? Personally i am interested in Brazil, India and China, but moreso if they offer a similar incentive as the US does.

Thank you for any advice good Sir.

Tax Guy - Burlington Accountant November 4, 2013 at 1:25 pm

Hi Justin,
There are none. Only US stocks have nil withholding tax inside an RRSP.

Justin Barracosa November 5, 2013 at 7:21 pm

Oh ok, thank you.
How about outside an RRSP? I believe the UK and Hong Kong have no withholding taxes, is this correct? Is there somewhere that would list such countries? Thanks again.

mel November 5, 2013 at 7:43 pm

I am looking at adding some Novartis AG (ADR) to my TFSA. How much withholding tax will I be assessed …. 15% US or 35% SWISS ?

Tax Guy - Burlington Accountant November 27, 2013 at 3:40 pm

Hi Mel,
Your best bet is to ask the brokerage firm the trades will be placed through. They can tell you for certain.

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