Holding TFSA while in USA

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DashReset
Posts: 5
Joined: Thu Jan 28, 2021 12:54 am

Holding TFSA while in USA

Post by DashReset »

Hello,

I arrived in California at the end of December 2020 on a TN visa from Canada. I am still holding my TFSA, so I am looking for some input on a few potential scenarios regarding the future of my TFSA account. I am holding only growth stocks which do not pay interest or dividends.

1) From my research, I am allowed to hold my TFSA while in USA but cannot contribute any more without paying a penalty. Is it permitted to make a few trades (handful of buys/sells) in the account with whatever cash was in the account prior to my arrival in USA? I understand I will be taxed capital gains when I sell.

2) My TN visa expires in 3 years - Can I keep my TFSA holdings until I return back to Canada and liquidate tax free? If so, when do I become a tax resident in Canada post leaving USA?

3) There may be a scenario where I gift "in kind" the holdings from my TFSA to my moms TFSA (back in Canada). This gift is for the purpose of helping her with her finances (mortgage) if such a need arises . Do I trigger any capital gains/deemed disposition when the transfer is made? What are the gift tax implications? Lets say years in the future, my mother gifts me something, does this void my initial gift in any way? Does this look sketchy in the eyes of the IRS?

For the record, I am not looking to evade taxes in any way, I'm happy to pay capital gains tax if it is fitting to my future plans.

Thanks.
nelsona
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Re: Holding TFSA while in USA

Post by nelsona »

1) You are allowed by CRA to maintain the TFSA while non-resident. However your contribution room does not grow while you are non-resident and you cannot contribute, even if you have room. How much activity you can actually do is up to your TFSA management (you MUST advise them that you are resident of California).

2). You can liquidate it anytime Cdn tax-free. However if you trigger any gains they will be taxable in US and Cali. If you wait until leaving US, then you resume the tax-free nature of the TFSA.

3. Aside from any gift tax issues, I'm quite sure a withdrawal given to your mom would trigger cap gains in US. As to goft tax, you are only allowed to give a certain amount per year to a non-resident without incurring gift tax. It is about US$15K per year.

One thing you are not mentioning is the trust reporting (Form 3520) that you may need to file each year, plus any PFIC reporting and taxation if you hold mutual funds or ETFs. This make most Cdns leaving canada for US to close their TFSA before leaving and reopening it when they return. At a minimum, they bump up the cost basis of their holdings before entering US, so that they minimize any future tax.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D
DashReset
Posts: 5
Joined: Thu Jan 28, 2021 12:54 am

Re: Holding TFSA while in USA

Post by DashReset »

Sorry for the delayed reply, I was expecting email notifications from this thread and didn't receive any.

I have a few additional questions:

1) I arrived in California on December 21st, 2020 and did not receive any income up to the end of 2020. I assume I do not have to file US taxes for tax year 2020, which means I do not have to report form 3520 until I file for tax year 2021 correct?

2) Can you please provide details on why you believe gifting securities will trigger capital gains in US? From my brief readings it appears capital gains are only triggered when the recipient triggers a sell.

3) I am primarily concerned with the legality of gifting securities to my mother and potentially receiving a higher value consideration in return, several years later. Such an event could occur if she liquidates her house.
DashReset
Posts: 5
Joined: Thu Jan 28, 2021 12:54 am

Re: Holding TFSA while in USA

Post by DashReset »

Hey Nelsona,

Checking in to see if you can provide some color for my follow up questions.

Thanks.
nelsona
Posts: 16793
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Holding TFSA while in USA

Post by nelsona »

1. Probably not.
2. Transferring should not generate a capital gain.
3. I don;t think that is a problem.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D
DashReset
Posts: 5
Joined: Thu Jan 28, 2021 12:54 am

Re: Holding TFSA while in USA

Post by DashReset »

Thanks for the input. I appreciate it.
DashReset
Posts: 5
Joined: Thu Jan 28, 2021 12:54 am

Re: Holding TFSA while in USA

Post by DashReset »

Apologies for reviving this thread...In case 3 (shown below) if her house was liquidated and I received a gift back which would be a larger consideration than my original gift to her - what are the chances that this transaction would be considered a loan and I have to pay imputed interest on the capital gains from the sale of her house.

"3) I am primarily concerned with the legality of gifting securities to my mother and potentially receiving a higher value consideration in return, several years later. Such an event could occur if she liquidates her house."
nelsona
Posts: 16793
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Re: Holding TFSA while in USA

Post by nelsona »

You would need to check this with an estate tax attorney.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D
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