efficient TFSA investment strategy for Can resident US persons

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Barlow
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Joined: Sat Feb 04, 2023 2:55 pm

efficient TFSA investment strategy for Can resident US persons

Post by Barlow »

What is the most tax and reporting efficient investment strategy for Canadian resident US persons who hold TFSAs (assuming one accepts the argument that TFSA's are not considered trusts by the IRS)? I'm new to this, but after a lot of reading this is my understanding so far:
-Canadian stocks, bonds, and GICs are generally good from a tax and reporting perspective (but they may not fit someone's investment strategy otherwise)
-Canadian funds don't seem like a good idea since they are generally presumed to be PFICs
-US stocks and funds may not be ideal because they are subject to withholding tax. I can't find a clear answer online about whether or not it is possible for a US person to avoid or recover this. Does filing form W9 with the broker eliminate it, or just reduce it to 15%? If the latter, can you recover this when filing your US taxes (and if so, how)? Assuming withholding tax can't be avoided, one potential way to minimize the impact of this is to invest in US growth funds (assuming this fits your investment strategy otherwise).

Anything important I'm missing?
Barlow
Posts: 4
Joined: Sat Feb 04, 2023 2:55 pm

Re: efficient TFSA investment strategy for Can resident US persons

Post by Barlow »

I guess I should clarify that I'm making an assumption here that the investor in question won't owe any US taxes (other than possibly withholding taxes) on their TFSA. This is true in my case because my employment income is from Canada and I use the foreign earned income exclusion on my US return (and any earnings in the TFSA are likely to fall below the US standard deduction).
ND
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Re: efficient TFSA investment strategy for Can resident US persons

Post by ND »

Does filing form W9 with the broker eliminate it
yes

when filing your US taxes report the TFSA income and claim passive FTC on 1116 for Cdn source passive income
nelsona
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Re: efficient TFSA investment strategy for Can resident US persons

Post by nelsona »

Remember too, that dividends on most Cdn stocks, and certainly those that trade on both Cdn and US exchanges, are considered qualified, so will be low or no taxed in US.

That, combined with any Cdn tax you pay on non-TFSA passive income, should cover any US tax on TFSAs. rembewr to carry forward any unused tax for future use, in years when you might generate a little mor income in your TFSA.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Barlow
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Joined: Sat Feb 04, 2023 2:55 pm

Re: efficient TFSA investment strategy for Can resident US persons

Post by Barlow »

Thanks for these replies.

I just spoke with someone at RBC Direct, and he was insistent that a filing a W9 with them would only reduce withholding on US source dividends--not eliminate it. If I understood him correctly, his take was that residency is the determining factor--not citizenship. So with regard to withholding for Canadian residents, W8-BEN and W9 accomplish the same thing. This logic makes sense to me (although I wish it didn't).

Any counterarguments to this? If not, is there a way to recover withholding tax from the IRS?
nelsona
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Re: efficient TFSA investment strategy for Can resident US persons

Post by nelsona »

As a US taxpayer, You recover the tax by filing your 1040 and including the withholding along with any other tax that was withheld/sent to IRS during the year.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Barlow
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Re: efficient TFSA investment strategy for Can resident US persons

Post by Barlow »

Is this information (i.e. the amount of tax withheld on an investment in a TFSA) readily available? Presumably no Canada tax slips are issued for TFSAs. Do all/most Canadian brokers issue 1099s for TFSAs? Or is there an easy way to calculate withholding yourself? Does it make a difference whether the US investment is a stock or a fund (the latter being potentially much more complex).
nelsona
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Re: efficient TFSA investment strategy for Can resident US persons

Post by nelsona »

The brokerage statements will definitely show the tax withheld. But They should also be issuing you a 1099 (if you have properly identified yourself as US person).
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
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