The 15% US Dividend Withholding Tax: TFSA, RRSP or Taxable?

1. Where does the 15% come from?

By default, the United States withholds 30% on dividends paid to non-residents. The Canada–US tax treaty cuts that rate to 15% for Canadian residents — provided your broker has a W-8BEN form on file for you. The good news: virtually every Canadian broker has you sign one when you open the account and renews it roughly every three years. Nothing to calculate on your end — the tax comes off at source, and 85% of the dividend shows up in your account.

One key nuance: withholding applies to dividends and certain distributions — not capital gains. Selling a US stock at a profit triggers no US tax for a Canadian resident.

2. Why the RRSP is exempt — and the TFSA is not

Article XXI of the treaty exempts recognized retirement plans from withholding: the RRSP, the RRIF and the LIRA. In the eyes of the IRS, the TFSA and the FHSA are not retirement plans — they're ordinary savings accounts. In practice:

• RRSP, RRIF, LIRA: 0% withholding on US dividends — as long as you hold the US securities directly (see section 3).
• TFSA, FHSA, RESP: 15% withheld. And since the income isn't taxable in Canada, no credit can ever offset it — the money is gone for good.
• Taxable (non-registered): 15% withheld, but recoverable through the foreign tax credit (section 6).

That's the paradox worth remembering: the TFSA — Canada's tax-free favourite, with $7,000 of new room in 2026 (see our TFSA guide) — is the worst account for US withholding, while the RRSP (2026 limit: $33,810 — see our RRSP guide) escapes it completely.

3. The condition most people miss: holding the US security directly

The RRSP exemption only works when the US payer can "see" your RRSP. That's the case when you hold:

• individual US stocks (Apple, Microsoft, Johnson & Johnson…);
• US-listed ETFs (VTI, VOO, ITOT, SCHD…), traded in US dollars.

Hold a Canadian-listed ETF that invests in the US instead (VFV, XUU, or an all-in-one like XEQT) and the tax is withheld inside the fund, before the dividend ever reaches you. The IRS sees a Canadian fund — not your RRSP. Bottom line: VFV in an RRSP pays the withholding; VTI in an RRSP doesn't.

The trade-off: buying VTI means holding US dollars, and currency conversion often costs around 1.5% at many brokers — unless you use Norbert's Gambit.

4. Worked example: $1,000 of VTI dividends in each account

Say your VTI position (a US total-market ETF) pays you US$1,000 in dividends over the year. Here's what happens by account (using an illustrative 40% marginal rate for the taxable account):

* The full $1,000 is still taxed as ordinary income at your marginal rate: $400 of Canadian tax, minus the $150 credit, leaves $250 owing on top of the withholding. Total burden: $400 — the withholding adds nothing; it's simply tax "prepaid" to the IRS.

Plainly put: in a TFSA or FHSA, the $150 evaporates. In a taxable account, it's netted against your Canadian tax bill. In an RRSP, it's never taken in the first place — the full dividend keeps compounding tax-deferred until withdrawal.

5. What about Canadian ETFs that hold US stocks? The XEQT case

Canadian all-in-one funds like XEQT (roughly 46% US equities) or VEQT pay the withholding at the fund level, no matter which account you use. Even inside an RRSP it can't be recovered — capturing the exemption would require holding the US sleeve through a US-listed ETF instead.

Rough annual cost, in a TFSA or an RRSP:

• VFV (100% S&P 500, ~1.3% dividend yield): about 0.20% per year of assets.
• XEQT (≈46% US): around 0.10% per year, since only the US slice is affected.

In a taxable account, however, the tax withheld inside a Canadian-listed ETF flows through to you on the T3 slip (the "foreign tax paid" box) and becomes recoverable via the foreign tax credit. For a full breakdown of these funds — fees, allocations, tax treatment by account — see our XEQT vs VEQT vs VFV comparison.

6. Taxable accounts: the foreign tax credit

In a non-registered account, the 15% isn't dead money. At tax time you claim the federal foreign tax credit (form T2209) plus its provincial equivalent (TP-772 in Quebec). The credit offsets tax already paid to the US, generally up to 15% of the foreign income. If 30% was withheld because no valid W-8BEN was on file, the portion above 15% can't be recovered from the CRA — you'd have to claim it back from the IRS directly.

Keep in mind, though: US dividends are taxed as ordinary income at your full marginal rate. They get none of the favourable treatment Canadian dividends enjoy — the gross-up and credit mechanism explained in our Canadian dividend tax credit guide.

7. Summary table by account

8. Keep the order of magnitude in perspective

US withholding costs somewhere between 0.10% and 0.30% per year depending on the fund and the account — real, but far from the only variable. Currency-conversion costs, management fees, the simplicity of an all-in-one ETF and plain saving discipline often matter more to the end result. The point is to know what each account actually costs you — not to reshuffle an entire portfolio over a few basis points.

Frequently Asked Questions

🌐 Lire cet article en français