Canadians treat their Tax-Free Savings Account like a fortress. And for domestic holdings, it basically is one, given that capital gains, interest, and dividends all grow untouched by the Canada Revenue Agency.
But cross the border with your TFSA money, and that fortress has a minor crack. If you hold dividend-paying U.S. stocks in your TFSA, the Internal Revenue Service (IRS) will take a cut before the money reaches your account.
Here is what that fine print means, and why it changes how a stock like Celsius Holdings (NASDAQ:CELH) fits into a Canadian portfolio.
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A U.S. dividend tax on the TFSA
The Canada-U.S. tax treaty gives the RRSP (Registered Retirement Savings Plan) special status as the IRS recognizes it as a retirement account and waives withholding tax on U.S. dividends held inside the account.
The TFSA was created after the treaty was last overhauled, so, as far as the IRS is concerned, it is just a regular taxable account. It means a 15% withholding tax gets applied automatically at the source every time a U.S. company pays you a dividend inside your TFSA.
Since the CRA does not tax TFSA income, there is no foreign tax credit to claim it back on your return. It is also worth noting that this problem does not disappear simply because you buy a Canadian-listed ETF tracking U.S. stocks, such as the Vanguard S&P 500 Index ETF.
Own growth stocks in the TFSA
Notably, the withholding tax applies only to dividends and not to capital gains. That single detail flips the whole equation for growth-focused U.S. names that pay little or no dividends, such as Celsius.
Celsius has spent the past year transforming itself from a single energy drink brand into a three-brand portfolio, adding Alani Nu and Rockstar alongside its original zero-sugar Celsius line.
Speaking at the Goldman Sachs Global Staples Forum on May 12, Celsius Chief Financial Officer Jarrod Langhans and Chief of Staff Toby David said the combined portfolio now holds a 21% dollar share of the U.S. energy drink category, roughly one of every five cans sold. Q1 revenue climbed 138% year over year, largely thanks to the Alani Nu acquisition.
Management is trimming slower-selling SKUs (stock-keeping units) and shifting shelf space toward higher velocity products, a process that will be complete by the end of this month.
At the dbAccess Global Consumer Conference on June 2, CEO John Fieldly said the company expects the brand to stabilize over the coming months and return to growth by year-end.
Langhans emphasized that rising aluminum and freight costs, tied to commodity pressures such as the London Metal Exchange premium, are delaying the company’s target of reaching low-50 % gross margins, likely into 2027 rather than by the end of this year.
Even so, the company is still in expansion mode: pushing into international markets like France, the U.K., and Germany, integrating Rockstar into its supply chain, and building out a revenue management team to fine-tune pricing across its three brands.
Celsius is a company reinvesting in growth rather than distributing cash to shareholders, which is the kind of profile that avoids the TFSA dividend trap entirely.
