US withholding tax in a TFSA is 15% of every US dividend, and you cannot get it back. The Canada–US tax treaty caps the US tax on dividends paid to Canadian residents at 15%, and it exempts retirement plans such as the RRSP entirely, but a TFSA does not get that exemption. Because no Canadian tax is owed inside a TFSA, there is nothing to offset the 15% against. On a US stock yielding 4.92%, that costs about 0.74 percentage points of return every year. Below we explain what the treaty says, how each type of account is treated, what the loss adds up to in dollars, and how investors usually arrange their holdings to avoid it.
What the Canada–US tax treaty actually says
Two provisions of the Canada–United States Income Tax Convention, as published by the IRS, do the work.
- Article X, paragraph 2 lets the country where the paying company is based tax a dividend, but says that for an ordinary shareholder the tax "shall not exceed... 15 per cent of the gross amount of the dividends." That is where the 15% comes from.
- Article XXI, paragraph 2, as amended by a later protocol, says dividends and interest derived by "a trust, company, organization or other arrangement" that is "operated exclusively to administer or provide pension, retirement or employee benefits" are exempt from tax in the other country. That is the clause that protects the RRSP and RRIF.
The TFSA is a general savings account, not a plan operated exclusively to provide retirement benefits, and it is not treated as one for this purpose. So US payers withhold the standard 15% treaty rate on dividends that land in it. That rate generally applies only once your broker has a W-8BEN form on file certifying that you are a Canadian resident; without one, the US statutory rate for non-residents is 30%.
How each account is treated
| Where the US dividend stock or US-listed ETF is held | US tax withheld | Can you recover it? |
|---|---|---|
| RRSP or RRIF | Generally none (treaty exemption) | Nothing to recover |
| TFSA | 15% | No: no Canadian tax to credit it against |
| Non-registered (taxable) account | 15% | Usually yes, through the foreign tax credit on your Canadian return |
In a taxable account the 15% is not really lost. You report the full dividend as income in Canada and claim a foreign tax credit for the US tax paid, so in most cases you pay little or no more total tax than if the US had withheld nothing. In a TFSA, the dividend is never taxed in Canada at all, so there is no Canadian tax for the credit to reduce. The 15% simply disappears.
Two points that often cause confusion:
- Capital gains are not withheld. The 15% applies to dividends. When you sell a US stock at a profit inside a TFSA, the gain remains tax-free in Canada and is not subject to US dividend withholding.
- Canadian-listed ETFs that hold US stocks still suffer the 15% inside the fund, before the money ever reaches you. That happens whatever account you hold the ETF in, including an RRSP, because the RRSP exemption applies to US securities the plan holds directly, not to US dividends received by a Canadian fund.
What 15% costs, in dollars
The drag on your return is the dividend yield multiplied by 15%. Higher-yielding stocks lose more.
A high-yield example. Kimberly-Clark ($KMB) pays $5.12 a year in dividends; at its October 15, 2026 close of $104.07, that is a yield of 4.92%, according to Financial Modeling Prep market data. On $10,000 held in a TFSA:
- Dividends received before withholding: $10,000 x 4.92% = $492
- US tax withheld: $492 x 15% = $73.80 a year
- What you keep: $418.20
That is a loss of 0.74 percentage points of return every year (4.92% x 15%).
A low-yield example. The SPDR S&P 500 ETF ($SPY) paid $7.58 per share over the past four quarters, a yield of 0.98% on its October 15 close of $771.79. On $10,000, the dividends are about $98 and the withholding about $14.70, a drag of 0.15 points a year. For a broad, low-yield US index fund, the cost is small.
Over time. An illustrative example, not a forecast: take an investment returning 7% a year, 4 points of which come from dividends. The 15% withholding removes 0.6 points (4 x 15%), leaving 6.4%. Over 20 years, $10,000 compounding at 7% grows to about $38,697; at 6.4% it grows to about $34,581. The difference is about $4,116, or roughly 41% of the original investment, lost to a tax you cannot reclaim.
How investors usually arrange their accounts
Because the treatment differs so much by account, where you hold each investment can matter as much as what you hold. The common approach, sometimes called asset location, looks like this:
- Hold US dividend payers in the RRSP, and hold them directly or through US-listed ETFs, so the treaty exemption applies.
- Hold Canadian dividend stocks in the TFSA. Canadian dividends carry no foreign withholding, so the full payment stays in the account. Canadian bank shares and Canadian dividend ETFs are typical examples; see our Big Six dividend yield comparison and VDY vs XEI.
- If you want US stocks in a TFSA, favour low-yielders. A US company that pays little or no dividend loses little or nothing to withholding, while its growth stays tax-free.
- Use the taxable account for what is left, knowing the foreign tax credit will generally offset US withholding there.
None of this means a US dividend stock is a bad holding for a TFSA. If the stock is the right investment for you, a 0.15 to 0.74 point annual drag may be worth paying. The point is to know the cost and choose deliberately.
Common mistakes to avoid
- Assuming "registered" means "exempt". The treaty exemption covers retirement plans. The TFSA is registered with the CRA, but that does not make it a retirement plan under the treaty.
- Not filing a W-8BEN. Without it, withholding can be 30% rather than 15%. Most Canadian brokers collect the form when you open an account or first buy a US security; it is worth confirming that yours has one on file.
- Chasing US yield in a TFSA. The higher the yield, the larger the unrecoverable loss. A US stock yielding 8% loses 1.2 points a year to withholding.
- Forgetting the fund layer. A Canadian-listed ETF that holds US stocks loses the 15% inside the fund in every account type, so moving it to an RRSP does not help.
Tax rules are specific to each person's situation. Confirm with a tax professional or your broker before reorganising your accounts.
For a Canadian dividend stock often held in TFSAs, see our look at Brookfield Corp for TFSA investors. Daily coverage is in the Markets section and on the Wall Street Conservative front page.
FAQ
Can I get back the US withholding tax taken from my TFSA?
No. A foreign tax credit can only reduce Canadian tax, and income inside a TFSA is not taxed in Canada, so there is nothing for the credit to reduce. The 15% is a permanent loss.
Is there US withholding tax on dividends in an RRSP?
Generally not, for US stocks and US-listed ETFs held directly in the RRSP or RRIF. Article XXI of the Canada–US treaty exempts plans operated exclusively to provide retirement benefits. US dividends received by a Canadian-listed fund are still taxed inside the fund.
Are Canadian dividends taxed in a TFSA?
No. Dividends from Canadian companies are paid in full into a TFSA with no foreign withholding, and they are not taxed in Canada while they stay in the account.
How much do I lose to US withholding tax in a TFSA?
15% of each US dividend. Multiply the yield by 0.15 to get the annual drag: 0.74 points on a 4.92% yield, 0.15 points on a 0.98% yield.