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Buying US Stocks In TFSA Explained

US stocks are securities that represent ownership in a publicly traded company. They are bought and sold on stock exchanges such as the New York Stock Exchange (NYSE) and the Nasdaq. Investing in US stocks allows individuals and institutions to share in the profits and growth of the underlying companies. This can provide both potential income in the form of dividends, as well as capital appreciation through increases in the stock price. Many investors consider US stocks to be a key component of a well-diversified investment portfolio.

A TFSA, or Tax-Free Savings Account, is a type of investment account available in Canada. It allows individuals to save and invest their money on a tax-free basis. This means that any investment income earned, such as interest or dividends, is not subject to federal or provincial income tax. Additionally, any withdrawals from a TFSA are also tax-free. TFSAs are an attractive option for individuals looking to save for long-term goals, such as retirement, as they provide a tax-efficient way to grow their savings.

Can I Buy US Stocks In A Canadian TFSA?

Yes, but there is a caveat. Even though a TFSA shields you from Canadian capital gains, you will be subject to the US withholding tax on the dividends from these US stocks. While this is not as high a taxation component as on an investment in a cash account, it’s not fully tax free, and generally would be a less rewarding investment than a Canadian company with the same intricacies.

Investing in US stocks through a TFSA can provide many benefits for Canadian investors. For example, the tax-free nature of the account means that any investment income earned from US stocks, such as dividends or capital gains, will not be subject to Canadian income tax. This can provide a significant boost to the overall returns on your investment. Additionally, the tax-free status of a TFSA means that any profits you make from selling your US stocks will not be subject to capital gains tax.

Another benefit of investing in US stocks through a TFSA is the flexibility it provides. You can contribute to a TFSA at any time, and there are no restrictions on how you use the money in the account. This means you can use your TFSA to invest in a wide range of assets, including US stocks, and you can easily withdraw your money if you need to.

How Can I Buy US Stocks In My TFSA?

To invest in US stocks through a TFSA, you will need to open a TFSA account with a financial institution or broker. Once you have opened the account, you can deposit money into it and use that money to buy US stocks. You can do this through a brokerage account, which will allow you to buy and sell stocks online. Alternatively, you can work with a financial advisor who can help you choose the right US stocks to invest in and manage your investments on your behalf.

The Risks Of Buying US Equities In A TFSA

It’s important to note that while you can buy US stocks in a TFSA, there are some potential risks and challenges to consider. For example, the value of your investment in US stocks will be subject to market fluctuations, which can lead to losses. Additionally, the Canadian and US economies and financial markets are closely linked, but they are not the same. This means that the performance of US stocks may not necessarily reflect the performance of Canadian stocks, or the overall Canadian economy.

Overall, investing in US stocks through a TFSA can provide many benefits for Canadian investors, including tax-free investment gains and flexibility. However, it’s important to carefully consider the potential risks and challenges before making any investment decisions.