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Foreign Tax credits and TFSA

When Foreign stock is held in most investment accounts and foreign tax is withheld on the dividends, the foreign tax credits usually refund most of this tax paid. But what happens when foreign stock is held in a TFSA or RRSP? The foreign tax credit is not available. Is there any other provision in the Canadian ITA to get that back?

Foreign dividends are taxed at a much higher rate than Canadian eligible dividends so I typically prefer to hold foreign stock in a registered account. I’m wondering if anyone with foreign investment experience has any tax planning advice.

Thanks

There isn’t. The tax isn’t paid to Canada so it’s not covered by the ITA but by the US Canada Tax Treaty. Which is why I tell my clients not to invest in foreign stocks in their RRSP or TFSA. If you have to pay the tax anyway you might as well get credit for it. I only recommend foreign stocks in a registered account if the non-registered accounts are already all foreign income. Trusts that pay “other income” and bonds that pay interest are my first recommendations for registered accounts.

I would refer you to Article XXI of the Canada-US tax treaty. RRSPs and RRIFs are exempt from US tax on dividends and interest. TFSAs are not. Your broker, or your client’s broker, should know how to handle that. I have received US dividends and interest in my RRSP, and now RRIF, tax free for years. I restrict my TFSA to Canadian investments. For other countries, do your research here:

https://www.canada.ca/en/department-finance/programs/tax-policy/tax-treaties/in-force.html

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