Title: Do You Pay Capital Gains on US Stocks in TFSA?

Introduction:

Investing in U.S. stocks is a popular choice for many Canadians, especially those who have a Tax-Free Savings Account (TFSA). But do you know if you have to pay capital gains on the stocks you hold within your TFSA? In this article, we'll explore the ins and outs of capital gains and TFSA, so you can make informed decisions about your investments.

Understanding Capital Gains

Capital gains occur when you sell a capital asset, like stocks, for more than you paid for it. In Canada, capital gains are taxable, but there's an important exception for TFSA investments.

TFSA and Capital Gains

A TFSA is a tax-free savings account that allows you to invest without paying taxes on any gains or income generated within the account. This means that, in general, you won't pay capital gains tax on stocks held within your TFSA.

However, it's crucial to understand that the tax-free status of a TFSA only applies to the gains you earn within the account. If you withdraw money from your TFSA and reinvest it into U.S. stocks, the capital gains on those stocks will be taxable, as they are not considered part of your TFSA.

Example:

Imagine you buy 100 shares of Company A at 10 each, and sell them a year later for 15 each. Your capital gain is 500 (5 per share x 100 shares). If you hold these shares within your TFSA, you won't pay capital gains tax on the $500 gain.

But, if you withdraw $500 from your TFSA and buy the same 100 shares of Company A, the capital gain on those shares will be taxable, as they are not considered part of your TFSA.

U.S. Stocks and TFSA

When investing in U.S. stocks within your TFSA, it's important to keep track of the capital gains. If you sell the U.S. stocks and earn a profit, you'll need to report the gain on your Canadian tax return.

However, there's a silver lining: the capital gains tax rate on investments held in a TFSA is generally lower than the rate applied to investments held outside a TFSA. This can help reduce the overall tax burden on your investments.

Conclusion

In conclusion, you won't pay capital gains tax on U.S. stocks held within your TFSA. However, it's important to understand that the tax-free status only applies to gains earned within the account. If you withdraw money from your TFSA and reinvest it into U.S. stocks, the capital gains on those stocks will be taxable. Always consult with a tax professional to ensure you're making the most of your TFSA investments.

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