- We have the RRSP
- We have the TFSA
- We have the Non Registered accounts
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Where should the US. Dividend stocks go?
Most investors want to maximize the tax free income they earn so the choice comes between RRSPs or TFSAs.
There's a significant advantage, by holding dividend paying US Stocks in an RRSP.
You are able to avoid the US withholding tax on dividends because of the exemption under the Canada/USA Tax treaty. You will not get that same treatment for TFSAs
What is a withholding tax? the amount of an investors revenue withheld and sent directly to the government as partial payment of income tax.
When a US company pays a dividend to someone living outside of the US, particularly in Canada the U.S. assesses a withholding tax of 15%, but there is an exemption when those stocks are held in an Canadian RRSP account. Once again that exemption does not exist for the TFSA.
In a taxable account when you receive the US dividends, you pay the 15% withholding tax, however you get a tax foreign credit to apply against your Canadian taxes, so effectively you end up paying your Canadian tax rate against the US dividends.