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When Your TFSA Income Becomes Taxable

The TFSA is a great choice to build wealth because the income accumulates tax-free. However there is one instance when the income inside the TFSA becomes taxable, and that is on US dividend stocks. Under US tax law, there is a 30% withholding tax on dividend income for non-US investors. Under the Canadian tax treaty, Canadian investors pay one half or 15% withholding tax. Other than putting these type of investments into your RRSP, there is no way to escape the tax.

Unless you are earning 15% more dividend income on US stocks than you do on Canadian stocks to compensate for the withholding tax, your better strategy would be to consider putting your money into good, high-yield Canadian dividend stocks.

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