Foreign investments

Are there TFSA penalties for holding foreign investments?

What would be the tax implications on a TFSA, if any, for the following scenarios? :

  1. A share listed on an American stock exchange that does not pay a dividend
  2. A share listed on an American stock exchange that pays a dividend
  3. a U.S. Certificate of Deposit (ADR) which does not pay dividends
  4. An ADR that pays a dividend
  5. A share listed in Japan or on the European stock exchange that does not pay a dividend
  6. A share listed in Japan or on the European stock exchange that pays a dividend
  7. A share listed on a Canadian stock exchange that owns all or part of the company in the United States and does not pay a dividend
  8. A share listed on a Canadian stock exchange that owns all or part of the company in the United States and pays a dividend
  9. A publicly traded ETF that owns some or all of the company’s holdings in the United States and pays a dividend
  10. An ETF listed on an American stock exchange that pays a dividend
  11. The global fund of a Canadian mutual fund company

—Chris G.

A. Wow, that’s a detailed question, Chris. Check the TFSA Guide and you will see the list of TFSAs “authorized investments “ which include cash, mutual funds, securities on a designated exchange, GICs, bonds and certain small business stocks.

The guide defines a “Unqualified investment” like any property that is not an eligible investment. (Very useful.)

So, are the investments you are considering on the approved list of designated scholarships? If so, you’re good to go as long as they stay listed. If an investment is delisted and transferred to the over-the-counter (OTC) market, it is no longer eligible, with the exception of Canadian public companies, which may become OTC and still be considered a qualifying TFSA investment.

When you contribute foreign funds to a TFSA *, the value will be converted to Canadian dollars and this value will be used to calculate the amount of the contribution. Keep an eye on your exchange rate calculations because if you are away you could over-contribute and face a penalty.

In addition, dividend income from a foreign country may be subject to foreign withholding tax. For example, dividend income from a US investment will be subject to a 15% withholding tax.

Consider your situation. Would a dividend-paying American investment make more sense in your RRSP, RRIF or open account, where you can reclaim the US withholding tax?


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