Q&A: TFSA rules

Question: Does the Canada-U.S. Tax Treaty also apply to the Tax-Free Savings Account for the exemption of the cross-the-border dividend tax? I am considering buying some Southern Company shares for my TFSA since I was under the impression that all registered accounts were exempted. – Pierre D.

Gordon Pape answers: Your impression is wrong. The Tax Treaty only covers “retirement accounts”. TFSAs are not considered to fall under that description since money can be withdrawn from them at any time, for any purpose. So they are not exempt from the 15 per cent withholding tax on U.S. dividends. Nor can you claim a foreign tax credit refund since the money was paid into a tax-sheltered account.

Photo ©iStockphoto.com/ philpell

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