Picture two Canadian residents who invest in the U.S. markets via the Tax-Free Savings Account (TFSA). While one buys a quality dividend stock such as Pepsi, the other buys Amazon (NASDAQ: AMZN).
However, only one of the two Canadian investors pays tax to the U.S. government each year. The tax is tied to a rule many investors never read.
Some Canadians would like to gain exposure to the U.S. market as it offers exposure to some of the world’s largest companies as well as diversification.
Moreover, owning these stocks in a TFSA or RRSP (Registered Retirement Savings Plan) is a good strategy if you know about this one minor catch.
Why the TFSA is so powerful for Canadian investors
The 2026 TFSA contribution limit is $7,000, increasing the maximum cumulative contribution room to $109,000.
The registered account shields dividends and capital gains from the Canada Revenue Agency. While Canada recognizes the TFSA as tax-free, the U.S. does not.
So, when a U.S. company pays a dividend on a stock you own in the TFSA, the U.S. government withholds 15% under the tax treaty between the two countries.
The U.S. takes its 15% share before the dividend reaches your account. However, inside an RRSP, the tax treaty exempts U.S. dividends from the same withholding.
So, if you own a portfolio of U.S. dividend stocks in the TFSA and earn $1,000 in annual dividends, you will only receive $850.
This is why some investors hold U.S. growth stocks that pay little or no dividend in the TFSA. They often hold dividend payers in an RRSP where the treaty exemption applies.
Why Amazon stock is a useful TFSA example
Valued at a market cap of $2.8 trillion, Amazon is among the largest companies in the world. Despite its massive size, it continues to grow at a steady pace and reinvests cash flow into the business. It has never paid a dividend, making it an ideal TFSA stock in October 2026.
In Q2 2026, Amazon reported revenue of US$200.6 billion, an increase of 20% year over year. Amazon Web Services, which is the company’s cloud segment, grew 36.7% and posted an operating income of US$16.6 billion.
Management is spending heavily amid the AI infrastructure buildout. CEO Andy Jassy said Amazon now expects about US$220 billion in capital spending in 2026, up from an earlier estimate near US$200 billion.
He also explained how the company limits its risk on equipment purchases: “If the demand isn’t there, we won’t spend the capital.”
Jassy said Amazon expects to face free cash flow headwinds in the short term while its new data centres come online.
Amazon has created massive wealth for long-term shareholders. Over the past 10 years, it has returned 550%. Since October 2006, AMZN stock has returned a monstrous 16,000%.
Analysts tracking Amazon stock forecast adjusted earnings per share to expand from $7.17 in 2025 to $19.57 in 2030. If AMZN stock is priced at 30 times forward earnings, below the 10-year average of 49 times, it could double within the next three years.
So, a $7,000 TFSA investment in Amazon right now could be worth $14,000 by the end of 2029, if analyst forecasts and the valuation hold.