US stocks in a TFSA

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par4
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US stocks in a TFSA

Post by par4 »

Up until now I haven't held US stocks in my TFSA although I have done well with CA. Do you have to have 2 separate TFSA's or are they just converted to CA $'s? in the one acct.
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Re: US stocks in a TFSA

Post by pmj »

Depends on which broker your account is at.
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Re: US stocks in a TFSA

Post by ghariton »

At TDDI you can open separate CAD and USD TFSAs.

If you want to transfer sums that are large between the accounts, consider using Norbert's Gambit.

Remember that dividends on U.S. equities are subject to withholding tax (unless they are in a RRSP). In a TFSA, you pay the withholding tax, but cannot claim credit for this, and so cannot get a refund from CRA (unlike in a non-registered account, where you can). With yields on U.S. equities currently averaging around 2 per cent (see e.g. VTI), that means a loss of some 50 basis points. If you tilt toward low-dividend stocks, you can reduce that. But then your return will be mostly in the form of capital gains. If these were in a regular account, they would be taxed at a 50 per cent inclusion rate. So holding growth U.S. equities in a TFSA costs you the foregone benefit of a lower tax rate.

One possibility is to hold Canadian fixed income in your TFSA and equities elsewhere. But if equities outperform fixed income, as they often do, you are using the TFSA to shelter from taxes a relatively low-yielding product.

I know of no general answer to this conundrum. Each investor must look to his or her own situation. But they should at least be aware of the issue.

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Shakespeare
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Re: US stocks in a TFSA

Post by Shakespeare »

So holding growth U.S. equities in a TFSA costs you the foregone benefit of a lower tax rate.
So 50% is less than 0%???

I might argue that the TFSA is the best place to hold growth equities - as long as you are sure that they will grow. :wink:
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Re: US stocks in a TFSA

Post by ghariton »

Shakespeare wrote: 28 Jan 2018 22:14
So holding growth U.S. equities in a TFSA costs you the foregone benefit of a lower tax rate.
So 50% is less than 0%???
No, 50% is less than 100%. If I use my TFSA to shelter a fixed income instrument, I will have sheltered 100% of whatever my marginal tax rate is. If I use my TFSA to shelter an equity returning capital gains, I will have sheltered 50% of my marginal tax rate.

If one feels confident that equity returns will exceed fixed income returns by enough to outweigh this tax advantage, then I think that one should be short bonds, investing the proceeds into equities

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Re: US stocks in a TFSA

Post by deaddog »

One thing to keep in mind is that you cannot withdraw US funds form your TFSA.

For whatever reason withdrawal have to be in Canadian Dollars.
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Re: US stocks in a TFSA

Post by adrian2 »

deaddog wrote: 29 Jan 2018 10:09 One thing to keep in mind is that you cannot withdraw US funds form your TFSA.

For whatever reason withdrawal have to be in Canadian Dollars.
At TDDI you can, albeit with a hoop to go through:
1. in the TFSA, you buy a US$ MMF;
2. you withdraw in kind the US$ MMF to a non-registered account;
3. you sell the US$ MMF in non-registered and you have the US$ cash.
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Re: US stocks in a TFSA

Post by deaddog »

If that is the case you should be able to do the same thing with a US stock.

I also guess you could us interlisted stocks to accomplish the same thing.

I had assumed the reason for only Canadian dollar withdrawal was ease of keeping track of withdrawals and contributions
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Re: US stocks in a TFSA

Post by par4 »

Thank you for all your replies. My reason for the inquiry was to broaden the exposure in my TFSA now it has reached the $100M mark. Perhaps I should buy some EFT's such as VEE, XID, or ZUH. Seems like individual stocks are a bit problematic.
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Re: US stocks in a TFSA

Post by AltaRed »

$100 million TFSA? You have done extraordinarily well. :P

Added:emoticon
Last edited by AltaRed on 29 Jan 2018 22:14, edited 1 time in total.
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Re: US stocks in a TFSA

Post by ukridge »

That may be a freudian typo!

OP, you may also want to consider HXS for TFSA. It is designated in CAD, and makes no distribution, One of the arguments against holding US stocks in TFSA is that the any dividend distributions are considered taxable. HXS does not really distribute anything, and hence gets around the problem.

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Re: US stocks in a TFSA

Post by gsp_ »

ghariton wrote: 28 Jan 2018 21:54 With yields on U.S. equities currently averaging around 2 per cent (see e.g. VTI), that means a loss of some 50 basis points.
30 basis points.


ukridge wrote:OP, you may also want to consider HXS for TFSA. It is designated in CAD, and makes no distribution, One of the arguments against holding US stocks in TFSA is that the any dividend distributions are considered taxable. HXS does not really distribute anything, and hence gets around the problem.
HXS charges a 30 bp swap fee so not sure what this is suppose to accomplish.
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Re: US stocks in a TFSA

Post by Eclectic12 »

ukridge wrote: 29 Jan 2018 22:08 That may be a freudian typo!

OP, you may also want to consider HXS for TFSA. It is designated in CAD, and makes no distribution, One of the arguments against holding US stocks in TFSA is that the any dividend distributions are considered taxable. HXS does not really distribute anything, and hence gets around the problem.

- ukridge.
Good point about considering HXS for it's lack of distributions.

However, YMMV as to whether one cares all that much about paying the US 15% withholding tax. Where there isn't a suitable no distribution alternative like where one wants to hold Apple directly, a top income earner may consider losing the US 15% withholding tax on the 1.46% dividend versus paying the Canadian 40+% on the distribution cheap.

There are other reasons such as avoiding currency conversions, having no RRSP contribution room or having a similar income in retirement so that the RRSP isn't all that attractive.


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Re: US stocks in a TFSA

Post by Ken »

Oh my! This a very timely thread. I was just in the process of converting my TFSA from cash (GIC's) to index funds and the available funds I was going to use are USD. This info changes my plans! Thanks.
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Re: US stocks in a TFSA

Post by Thegipper »

par4 wrote: 29 Jan 2018 19:51 Thank you for all your replies. My reason for the inquiry was to broaden the exposure in my TFSA now it has reached the $100M mark. Perhaps I should buy some EFT's such as VEE, XID, or ZUH. Seems like individual stocks are a bit problematic.
can you explain how you got your TFSA up 100 million? Quite frankly I don't believe you.May-be you meant 100k.
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Re: US stocks in a TFSA

Post by adrian2 »

Thegipper wrote: 24 Feb 2018 14:48
par4 wrote: 29 Jan 2018 19:51 Thank you for all your replies. My reason for the inquiry was to broaden the exposure in my TFSA now it has reached the $100M mark. Perhaps I should buy some EFT's such as VEE, XID, or ZUH. Seems like individual stocks are a bit problematic.
can you explain how you got your TFSA up 100 million? Quite frankly I don't believe you.May-be you meant 100k.
In one convention:
$1M = $1,000
$1MM = $1,000,000
$1MMM - $1,000,000,000

M stands for mille (French for a thousand)
MM stands for mille de milles (thousand of thousands) and so on.
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Re: US stocks in a TFSA

Post by Thegipper »

adrian2 wrote: 24 Feb 2018 16:16
Thegipper wrote: 24 Feb 2018 14:48
par4 wrote: 29 Jan 2018 19:51 Thank you for all your replies. My reason for the inquiry was to broaden the exposure in my TFSA now it has reached the $100M mark. Perhaps I should buy some EFT's such as VEE, XID, or ZUH. Seems like individual stocks are a bit problematic.
can you explain how you got your TFSA up 100 million? Quite frankly I don't believe you.May-be you meant 100k.
In one convention:
$1M = $1,000
$1MM = $1,000,000
$1MMM - $1,000,000,000

M stands for mille (French for a thousand)
MM stands for mille de milles (thousand of thousands) and so on.
sorry for my poor French. Thank you for your assistance .
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Re: US stocks in a TFSA

Post by ig17 »

I came across an annoying quirk in TDDI system.

I bought US stock in a US dollar TFSA. I have DRIP flag set on the entire account. The stock paid a dividend on Friday. TDDI executed the transactions in the following order:

- credit the dividend
- drip the dividend (almost the entire dividend amount dripped)
- debit 15% withholding tax

I ended up with a negative cash balance in the TFSA. My contributions are already at the max, so I can't add more cash. I will call on Monday to sell one share to cover the negative balance.

A more sensible order of transactions would be:

- credit the dividend
- debit 15% tax
- drip the remainder
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Re: US stocks in a TFSA

Post by kcowan »

If you leave the debit balance, what can TD do?
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Re: US stocks in a TFSA

Post by ig17 »

kcowan wrote: 16 Sep 2018 11:26 If you leave the debit balance, what can TD do?
They can start charging me margin interest.

They can zero out the balance by taking cash from another account. I expect they would call me first before doing that.
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Re: US stocks in a TFSA

Post by jeremy »

When I had a similar issue, TDDI just credited my account when I called them. Or if you have some cash in your CAD TFSA, you could transfer it to the USD side.
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Re: US stocks in a TFSA

Post by ig17 »

jeremy wrote: 16 Sep 2018 12:54 When I had a similar issue, TDDI just credited my account when I called them. Or if you have some cash in your CAD TFSA, you could transfer it to the USD side.
I owe them about $35. I doubt they will just gift it to me.

No cash on the CAD side... that would be too easy.
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Re: US stocks in a TFSA

Post by deaddog »

ig17 wrote: 16 Sep 2018 12:06
kcowan wrote: 16 Sep 2018 11:26 If you leave the debit balance, what can TD do?
They can start charging me margin interest.

They can zero out the balance by taking cash from another account. I expect they would call me first before doing that.
Have you talked to anyone at the bank?
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Re: US stocks in a TFSA

Post by ig17 »

deaddog wrote: 16 Sep 2018 13:31 Have you talked to anyone at the bank?
I will call on Monday when the market is open. I will ask them to sell one share commission-free.
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Re: US stocks in a TFSA

Post by deaddog »

ig17 wrote: 16 Sep 2018 13:36
deaddog wrote: 16 Sep 2018 13:31 Have you talked to anyone at the bank?
I will call on Monday when the market is open. I will ask them to sell one share commission-free.
Why not explain the situation and have them revese the process. That might be all it takes.
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