TFSA account - Canadian non-resident.

[peters]

In 2008 we moved from Canada to US. We filed Canadian exit returns in 2008. Since then we haven't filed returns in Canada assuming that we are non-residents in Canada. We continued to file only in US as residents of US. By our mistake we forgot to close TFSA with $2000 in it. This year I got a letter from CRA that we owe for 2010 penalty of 1% for each month the $2000 was in the account which comes to about 12 * $20 = $240.

Separate issue is that I didn't mention this account on my US returns after our move. I reported RRSP acounts on 8833 form when reporting for 2008 in US.

How to remediate this situation? Should I just pay the CRA penalty and close the account (withdrew the money) or is there a way to avoid this penalty?

What to do about US returns? There might not be any significant interest earned on this account.

[nelsona]

I'm curious as to why you got penalized by CRA. There is no problem for a non-resident of canada to have a TFSA. They cannot contribute to it however, and that might be why you were penalized. Could you elaborate?

As to TFSA reporting, there are several good threads on this, that others may help you find.

[peters]

Thanks for response. Actually you have a good point. I read the letter again more carefully.

What happened, after our move in 2008 the $2000 was contributed to the account in 2010. Since we were non-residents our contribution limit for 2010 was $0. As the letter states, we are being charged penalty for contribution above the allowable limit. For each month the excess contribution remains in the account they asses 1% of the excess contribution.

[nelsona]

Yeah. That is what I thought. Dump the TFSA.