What Canadians Need to Know About Holding U.S. Stocks in a TFSA

A lot of Canadians look to U.S. stocks as a source of long-term growth for their portfolios and for good reason: there’s more selection and more exciting tech (think AI), and, of course, it’s home to the Magnificent Seven. No doubt, a major reason why the U.S. stocks have been a major draw for Canadian investors has been the relative outperformance through the years. More recently, though, the tables have turned, and Canada might be the place for Americans to invest as growth cools and value (as well as dividends) becomes more fashionable.

While I think Canadian investors should strive to have a good mix of U.S. and Canadian stocks, I do think the puck seems to be headed in Canada’s direction, at least for the time being. Of late, commodities and hard assets seem to be a good place to be, rather than software or CapEx-intensive technology players who risk a lot by going big on the AI boom for 2026. Though home-country bias, which sees investors overweight their portfolios in domestic stocks, isn’t a good thing, I do think that the incentive to invest in a TSX stock has risen in recent months.

Though Canadian markets look like the new place to be as the S&P 500 stalls out (it has had a rough 2026 so far), I do think that some of the best-in-breed U.S. businesses are worth going after, even overweighting, especially now that volatility has set in. Some powerful multi-trillion-dollar companies offer Canadian investors something that one can’t find on this side of the border.

U.S. stocks are staples for Canadians, but are they worth stashing in a TFSA?

And right now, names like Alphabet (NASDAQ:GOOG) really do stand out as more or less must-owns, if not for the incredible AI innovation, for the very talented management led by the great CEO Sundar Pichai.

With GOOG stock plunging below $300 per share, you’re getting the name at 27.8 times trailing price-to-earnings (P/E), which screams a great deal, especially when you consider Google’s odds of landing on the AI podium once the race finishes. For such a powerful AI force in a market where size could offer an edge, I’d argue the current valuation is a bargain. But is it worthy of a spot in one’s TFSA portfolio? It really depends.

The number-one thing to think about when buying U.S. stocks for a TFSA is the 15% dividend withholding tax. It comes right off your dividend payment, so if you’re betting on a dividend stock with a fat yield, it might not be optimal to stash away such a name in your TFSA. The RRSP is a better fit for such American high-yielders, given that such an account will allow you to dodge the 15% dividend withholding tax.

When it comes to a growth stock with a nearly negligible dividend, though (GOOG has a 0.28% yield), I’d argue that the yield isn’t large enough to matter.

Your TFSA is the perfect fit for U.S. growth companies

For a TFSA, it’s more about the capital gains potential. And on that front, U.S. stock gains are completely tax-free. That’s the big thing, not the 15% withholding tax, which is unfortunately the cost of holding U.S. stocks in that TFSA.

When it comes to Alphabet stock, 15% of 0.28% is a very small number. As such, I think deep-value tech darlings or U.S. stocks that don’t pay dividends are fantastic TFSA holdings that can help build your TFSA.

The post What Canadians Need to Know About Holding U.S. Stocks in a TFSA appeared first on The Motley Fool Canada.

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Fool contributor Joey Frenette has positions in Alphabet. The Motley Fool recommends Alphabet. The Motley Fool has a disclosure policy.