Tax implications of TFSA if working in US under TN Visa?

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simkessy
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Joined: Thu May 03, 2018 12:58 pm

Tax implications of TFSA if working in US under TN Visa?

Post by simkessy »

Hi!

I'm talking with a friend about working for his company in California, I am based in Ottawa. I would apply for a TN Visa and move down there, ideally.

The problem I'm facing is that I have a TFSA account which is maxed out and has a current value of 110K+. I've read that I NEED to liquidate this account before moving but my TFSA is half MJ Stocks, an industry and expect to grow significantly in the next couple years. I don't believe liquidating is in my best interest given how much Id be saving on the potential gains in the coming years.

Additionally I have an RRSP valued at 12k which some US stocks, which I do not mind liquidating.


I need some advice on what I should do. I've read that if I live in the US for 182+ days, I'm considered a resident and my TFSA will be deemed a Foreign Investment Trust and automatically be charged 35% and subsequently charged on the gains.

I'm having a hard time understand the nuances, for example, am I charged if I realize gains or simply for having these assets / accounts.

Any advice would be greatly appreciated because I really would like to move to San Francisco but the tax implications seem incredibly unfair and burdensome.
nelsona
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Post by nelsona »

You CAN keep a TFSA when in US, but it does not have tax-free status in US, and it carries reporting requirements that can be very complicated. The other things you wrote are only partially true, you would only be penalized if you failed to report the TFSA and its assets.

If you decide to keep the TFSA, be sure to bump up the cost basis of all the assets before moving, by selling and buying them back. Otherwise, when you do sell, you will have to pay US cap gains tax on ALL the gains, not just those that occur after you move.

The RRSP is no problem. do NOT cash it out until after you leave Canada, if you even choose to do that.

By the treaty, you become a US tax resident, and a Cdn non-resident the day you leave, not simply after spending 180 days in US.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
simkessy
Posts: 6
Joined: Thu May 03, 2018 12:58 pm

Post by simkessy »

Hi,


[quote]You CAN keep a TFSA when in US, but it does not have tax-free status in US[/quote]
When you say it doesn't have a tax free status, is tax incurred only on realized gains or unrealized gains? if I can keep my TFSA and just not realize my gains over my time in the US to avoid capital gains that, I'm happy with that.

[quote]you would only be penalized if you failed to report the TFSA and its assets. [/quote]
So as long as I report my accounts, and do not realize the gains, I will not pay taxes on them?

[quote]be sure to bump up the cost basis of all the assets before moving, by selling and buying them back.[/quote]

Neat trick.

[quote]do NOT cash it out until after you leave Canada, if you even choose to do that. [/quote]
Ideally I wouldn't want to cash out but I would stop using the account to avoid capital gains tax. I guess it's the same question as above, if I don't realize gains, am I taxed just for having these accounts


[quote]By the treaty, you become a US tax resident, and a Cdn non-resident the day you leave, not simply after spending 180 days in US.[/quote]

I thought I needed to pass the Substantial Presence Test (https://www.irs.gov/individuals/interna ... sence-test)

Thank you.
nelsona
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Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

You would be taxed in US on the internally generated income, without regard for it being a tax-sheltered palan: dividends, distributions, etc would be taxed year-by-year, as well as realized gains triggered by trades.

The account would be subject to trust and foreign account reporting.

RRSPs are not treated the same as TFSAs. They are protected, and tax-deferred until you withdraw funds, at which point the book value on the day you arrived in US is considered non-taxable portion.

The treaty overrides SPT. You are non-resisnt of Canada and resident of US as determined by the treaty. However, if you do not meet SPT yo uare then permitted to file 1040NR to TREATED like a non-resident for that particular year. For that to be the case for this year you would need to not meet SPT.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
simkessy
Posts: 6
Joined: Thu May 03, 2018 12:58 pm

Post by simkessy »

Hey,

Sorry just to be absolutely clear I understand this correctly:

If my TFSA has stocks which pay out not dividend but double in value over my time in the US, but I don't sale or make any trades. I will not pay any taxes.

But if my position pays out a dividend, I will pay taxes on that dividend or distribution, etc. Is this an accurate understanding?

Essentially, if I move down there, report the accounts timely, do not make any trades within the account. I will not be forced to pay taxes on the TFSA.

Because if that's the case that saves me a lot of trouble. I just need to ensure my non-dividend paying stocks are not in the TFSA and not make any trades while in the US right.
nelsona
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Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

All is correct, although I think you meant " I just need to ensure my dividend paying stocks are not in the TFSA".

I repeat however that you will need to abide by trust (3520) and FATCA reporting on this account.

And remember that you cannot keep any other investment accounts in Canada.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
simkessy
Posts: 6
Joined: Thu May 03, 2018 12:58 pm

Post by simkessy »

Yes sorry I meant that I should NOT keep dividend paying stocks in the TFSA.

[quote] abide by trust (3520) and FATCA reporting on this account. [/quote]
Sounds good, I'll make sure to report them correctly.

[quote]you cannot keep any other investment accounts in Canada[/quote]
Sorry, so that means I'd need to close my Margin Account? There's only $1k in there cash so I don't mind. But I can keep my TFSA (under the conditions discussed above and RRSP) because it's part of the treaty.

[/quote]
nelsona
Posts: 18314
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

You can only keep those accounts the the SEC allows. The SEC does not allow US residents to deal with brokers not licensed in the states, except for sheltered accounts (TFSA,RESP,RRSP,RRIF,LIRA). Same way a Cdn resident can't have a brokerage account in US.

Not a treaty matter, but a securities commission matter.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
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