Reporting TFSA income in the US - reportable loss or not?

redbeer · Post by **redbeer** » Thu Apr 10, 2014 5:48 pm

With the TFSA holding a security that is not liquid, I seem to have no other choice but to report it on US tax return. I cannot sell it and close the account.

The security lost value in 2013, so now when I start reporting it, I stand to pay taxes on returns even as it goes back up to the original value.

Is there a way to use book value or purchase cost as a "cost basis", so I don't get dinged in the US for what I paid tax in Canada already?

Thank you.

nelsona · Post by **nelsona** » Thu Apr 10, 2014 5:54 pm

A TFSA is like any other account i neyes of US (except for all the extra foreign trust reporting -- welsom to that nightmare).

So, the cost basis is its original cost basis. You would have needed to crystalize its values before leaving.

And since TFSA are not subject to deemed disposition, you cannot use that aspect of the treaty to re-set your cost basis to moving day.

Note that a similar thing would need to be done in one's RRSP before leaving canada in order to lower the amount of future US tax on the RRSP growth.

redbeer · Post by **redbeer** » Fri Apr 11, 2014 9:29 am

So for the non-crystalized TFSA, I use the original invested amount as the cost basis, that is fine in this case.
Thanks.

nelsona · Post by **nelsona** » Fri Apr 11, 2014 9:31 am

When you sell/trade the investment, yes.

redbeer · Post by **redbeer** » Fri Apr 11, 2014 12:59 pm

Oh, is every TFSA a "foreign trust"? Is that determined by the investments in the account, e.g. cash and common shares of a private company.

nelsona · Post by **nelsona** » Fri Apr 11, 2014 1:21 pm

Unless the TFSA "trustee" (there's a dead giveaway) says specifically that your account is not a trust as defined by IRS, its a foreign trust. Its the account, not what's in it.

Apart from FBAR and trust reporting you also have PFIC and foreign asset considerations, based on what is IN the account.

redbeer · Post by **redbeer** » Fri Apr 11, 2014 3:03 pm

I called them and tried to get a definition from them, the only thing I got is that they interpret it as "not a trust" but they cannot claim it in terms of IRS definition.

They said it is possible to do withdrawal-in-kind and then a contribution-in-kind into an RRSP account, and then close the TFSA account, which somehow they did not mention last year as an option.

nelsona · Post by **nelsona** » Fri Apr 11, 2014 3:53 pm

That will require an RRSP trustee that is willing to deal with you. TD waterhouse is one that is favourable to US clients. Sometimes they are not willing to take new RRSP money (ie only accept RRSP transfers).

You also need to have suficient RRSP contribution room.

Can I ask why this investment simply can't be sold?

redbeer · Post by **redbeer** » Fri Apr 11, 2014 5:03 pm

Sure, this investment is shares in a private oil company, not traded in public markets. Shares lost a lot of value, so noone is willing to buy.

nelsona · Post by **nelsona** » Fri Apr 11, 2014 5:13 pm

Well then your move to US may help you in the long run! Since this lost was never going to be able to be reported on a Cdn return, your move has suddenly made it possible -- IF you can sell.

The better quaestion to ask though is whether a US broker would aggree to handle those shares (?). This would avoid the RRSP jump. The ral problem is that you are not allowe to have a non-sheltered account in canada when living in US (That may ne whey the suggestion is either keep in TFSA or move to RRSP).

If you can get a US broker to transfer these to a US account, then your account problems and tfsa poblems are solved.

Then you just have to wait and sell.

Do these shares have a price?

nelsona · Post by **nelsona** » Fri Apr 11, 2014 5:17 pm

But given the choice to have these in a TFSA or an RRSP, I would choose RRSP, as US recognizes these.

I'm aslo wondering if -- for US tax purposes -- the move from the TFSA to RRSP would in effect crystalize your losses. they don't in canada only because the TFSA is non-taxable. were these shares held unsheltered, the transfer would have triggered the loss in Canada.

I get the sense that IRS would accept that atransfer from TFSA to RRSP would be a sale, since they view RRSP as a trust. but that is way above my amateur paygrade.

nelsona · Post by **nelsona** » Fri Apr 11, 2014 5:20 pm

Dis a little research , aan in-kind transfer to an RRSP from a unsheltered account would not trigger a cap loss. That is the rule in Canada anyways.

nelsona · Post by **nelsona** » Fri Apr 11, 2014 5:26 pm

and US doesn't have proviosns to allow in-kind transfers into Retirement accounts at all, so I'm sure TFSA to RRSP would not yield a triggered capital loss.

So Iguess its left to finding a willing RRSP trustee to open an account for your and put these shares in it.

For US purposes, I would think you would NOT elect to defer taxation on that account, since this would limit your ability to claim losses in future. Just repot the RRSP on 8891 but don't make the election.

nelsona · Post by **nelsona** » Fri Apr 11, 2014 5:28 pm

That is also how you should treat the RRSP you sold in 2013, report it on 8891 but don'r take the election, that allows you to just report whatever income the sale triggered, along with any income it genrated during the year, prior to your sale.

redbeer · Post by **redbeer** » Fri Apr 11, 2014 5:46 pm

Thanks a lot for the options. This TFSA "trustee" is actually willing to open an RRSP account and put the shares in, they do have value, some $1400 currently. There is enough contribution room.