US Withholding Tax in RRSP, TFSA, FHSA and Non-Registered Accounts: Account Type and Fund Structure

Published 3 November 2026 by Steffan Kharmaaiarvi, founder

US withholding tax on dividends is one of the few costs in a Canadian client's portfolio that depends on two things at once: the account a holding sits in (RRSP, TFSA, FHSA or non-registered) and how the holding reaches US shares (a US-listed ETF, a Canadian-listed ETF that buys US ETFs such as VFV or XEQT, or a Canadian fund that holds US shares directly). The same 15% can be exempt, credited against Canadian tax, or lost for good. This note sets out the rules from the treaty and the Income Tax Act, an illustrative worked example and what Borderfolio shows. It is decision support for professional review, not tax advice.

The rate: 15% under the treaty

Article X(2)(b) of the Canada–United States tax convention caps US tax on dividends paid to a Canadian resident at 15% of the gross amount in all cases other than a company holding at least 10% of the voting stock (5%). For an individual investor or a Canadian fund holding US shares, 15% is the working rate.

The RRSP and RRIF exemption: Article XXI(2)

Article XXI(2) of the same treaty exempts dividend and interest income derived by a trust, company or other arrangement that is resident in Canada, generally exempt from tax there and operated exclusively to administer or provide pension, retirement or employee benefits. An RRSP or RRIF holding US-listed securities directly fits that description, so US dividends it receives directly are exempt from US tax. Two limits matter:

• It covers income derived by the plan itself. When the RRSP holds a Canadian-listed ETF, the dividends are paid by US companies or US ETFs to the Canadian fund, not to the RRSP. The fund is not a retirement arrangement, so the 15% is taken inside the fund. That the exemption does not reach through a Canadian fund is a reading of the treaty text, not a published CRA or IRS statement; Borderfolio labels it as such.
• It covers pension and retirement arrangements. The TFSA and FHSA are not retirement plans in the treaty's sense, and Borderfolio treats US dividends in them as withheld at 15%. Again, this is a reading of Article XXI(2); neither tax authority publishes a list.

Recoverable only where the income is taxed in Canada

A Canadian resident may deduct from Canadian tax the foreign non-business-income tax paid, up to the Canadian tax on that foreign income (Income Tax Act, s. 126(1); CRA line 40500 and Form T2209, with Form T2036 for the provincial part outside Quebec). The credit works against tax on income the client reports. Dividends earned inside an RRSP, TFSA or FHSA are not reported each year, so there is nothing for the US tax to be credited against: inside those accounts it is a permanent cost. Where foreign tax on property income exceeds 15%, the excess is deductible rather than creditable (s. 20(11)).

When a Canadian-listed ETF suffers the withholding inside the fund, a taxable holder still gets the credit: the fund reports the foreign income and the foreign tax paid on the T3 slip. BlackRock's 2025 distribution characteristics for its Canadian iShares funds list them per unit as box 25 (foreign income) and box 34 (foreign tax paid). Vanguard's 2025 distribution history for its Canadian ETFs reports, per VFV unit, CAD 1.81097 of foreign income and CAD 0.28441 of foreign withholding tax.

Three fund structures

An all-in-one fund such as XEQT only bears US withholding on its US part. Borderfolio's catalogue, built from BlackRock's holdings file dated 29 October 2026, puts 45.7% of XEQT's net assets in US ETFs; the fund page on 2 November 2026 showed XTOT at 31.12% and ITOT at 14.16%, 45.28% together. A Canadian ETF that holds a US-listed ETF of non-US shares (an EAFE fund, for instance) suffers a second layer of foreign withholding inside the US ETF that no Canadian holder can recover; Borderfolio does not count that layer.

A worked example (illustrative)

An Ontario client has seven holdings, each expected to pay CAD 1,500 of US-source dividends a year. Round illustrative figures; for XEQT, US dividends are taken as 45.7% of its distributions, its US share of assets.

• Arithmetic. 1,500 × 15% = 225. For XEQT, 1,500 × 45.7% = 685.50 of US dividends, × 15% = 102.83.
• Lost each year: 225 + 225 + 225 + 102.83 = CAD 777.83. Credited: 225 + 225 = CAD 450, provided the client has enough Canadian tax on that income to absorb it.
• The cheapest fix is often a move between accounts, not a change of fund: the US-listed ETF in the RRSP costs nothing in withholding, while VFV in the same RRSP costs 225. The trade-offs (currency conversion, US estate exposure, T1135 for US-listed holdings outside registered plans) belong in the same conversation.

What Borderfolio shows

For a client resident in Canada, the Cross-Border tab adds the finding US withholding by account and fund structure:

• Per holding and account. The account type comes from its tax wrapper: RRSP, LIRA and LIF are treated as RRSP/RRIF; TFSA, FHSA, RESP and RDSP as not exempt. US-listed holdings in an RRSP show nothing withheld.
• Fund structure from a catalogue. Canadian-listed ETFs are matched by ISIN, then ticker, against a catalogue of 77 funds built from the issuers' holdings files, each with its date: route none, direct, US ETF, mixed or swap, and the share of net assets whose dividends bear US withholding. A swap-based fund shows nothing withheld; a fund whose share is not published is left out, never guessed.
• Totals: lost and credited, in CAD a year, on the engine's projected dividends. If a Canadian fund is not in the catalogue, or a holding's dividends are unknown, the holding is listed without an amount and no total is given.

Not modelled: the second layer of withholding inside US ETFs of non-US shares; the use of a fund's US share of assets as its US share of dividends is an approximation; whether the client has enough Canadian tax to use the credit is not checked. The cross-border documentation lists every screen and its limits; the T1135 side is in Form T1135 for Canadian advisers.

Frequently asked questions

Is US withholding tax recoverable in a TFSA?

No. Dividends earned in a TFSA are not reported as income in Canada, so there is no Canadian tax for the US tax to be credited against. Article XXI(2) of the treaty covers pension and retirement arrangements; Borderfolio treats a TFSA, like an FHSA, as outside it.

Does an RRSP avoid US withholding on a Canadian-listed ETF like VFV?

No. The 15% is withheld when the US ETF pays the Canadian fund, before anything reaches the RRSP. The treaty exemption applies to income the RRSP derives itself, such as dividends from a US-listed ETF it holds directly.

How does a non-registered account recover US withholding on a Canadian ETF?

The fund reports the foreign income and the foreign tax paid on the T3 slip, and the client claims the foreign tax credit on Form T2209, up to the Canadian tax on that income.

What rate does the US withhold on dividends to a Canadian resident?

15% of the gross dividend under Article X(2)(b) of the Canada–US treaty, for holders other than a company owning at least 10% of the voting stock.