I am a US citizen in canada, and am in late stages of planning to start a TFSA ( and not file 3520, and only hold non-PFICs in it).
As I understand it, the income from that TFSA is taxable by the US but not by Canada.
I have quite a bit of nonregistered stock / interest income that will generate some passive FTC, and and I hope to use it to cancel out any US tax on the income from the TFSA.
I read online in at least 3 places
(eg. footnote 4 here:
https://www.zeifmans.ca/blog/tfsas-for- ... e-caveats/ )
that I should not hold US dividend stocks in the TFSA -- since that income will not be cancellable by the passive FTC.
Is that true?
If so, what kind of stocks/ETFs are a good choice for a TFSA?
If relevant, the value of my nonregistered accounts is 10x my TFSA contribution room,
I have no RRSP room, I am in a 45+% marginal tax bracket in canada.
US dividend stocks in TFSA
Moderator: Mark T Serbinski CA CPA
Re: US dividend stocks in TFSA
It is very likely that the US stocks are issuing qualified dividends, which are not taxable in US unless you are in a very high tax bracket.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Re: US dividend stocks in TFSA
Thank you nelsona, much appreciated!
I now understand that US qualified dividends (of which I get a decent amount) should be treated as US sourced.
Unfortunately (or fortunately) I am in this high tax bracket. So my qualified dividends are taxed at 15% by the US.
So to summarize my understanding, I give a digest of what I think happens in a simple scenario, and would be grateful for thoughts.
---------
Assumptions: Everything is in non-registered accounts in Canada. I am a US citizen, resident of Canada.
Amount of (US) Qualified dividends: $Q
Amount of Canadian bank interest: $I
Amount of salaried income in canada: $S
(I am avoiding mentioning canadian listed stock dividends for simplicity. Also we assume that US qualified dividends are not from canadian cross listed companies like TD).
In Canada, my taxable income is $Q + $I + $S, and I calculate my income tax on that - let us say it equals $CT.
In the US, for the general basket of $S of income, I can say that I paid CT * (S / (Q+ I + S)) tax on it to Canada and get FTC for that.
In the US, for the passive basket of $I of income, I can say that I paid CT* ( I / (Q + I + S)) tax on it to Canada and get FTC for that.
In the US, I cannot use any FTC to offset any tax on the $Q of qualified dividend income.
If my income bracket is low enough, then there would be no US tax on this $Q, but if not it might be 15% or 20%.
In case there was 15% or 20% tax on the $Q in the US, then I should also add a T2209 to my Canadian tax return and claim 15% of $Q as tax that I paid on the $Q of dividend income.
(This will ultimately reduce the tax that I pay to Canada, but as I understand from nelsona's comment on another post, I should not then reduce $CT and redo the above calculation.)
If it was actually 20% tax, then some dividend income should be resourced so that it gets brought down to 15% on the US return -- I do not understand this but fortunately (or unfortunately) I am not in this situation.
----------------
I now understand that US qualified dividends (of which I get a decent amount) should be treated as US sourced.
Unfortunately (or fortunately) I am in this high tax bracket. So my qualified dividends are taxed at 15% by the US.
So to summarize my understanding, I give a digest of what I think happens in a simple scenario, and would be grateful for thoughts.
---------
Assumptions: Everything is in non-registered accounts in Canada. I am a US citizen, resident of Canada.
Amount of (US) Qualified dividends: $Q
Amount of Canadian bank interest: $I
Amount of salaried income in canada: $S
(I am avoiding mentioning canadian listed stock dividends for simplicity. Also we assume that US qualified dividends are not from canadian cross listed companies like TD).
In Canada, my taxable income is $Q + $I + $S, and I calculate my income tax on that - let us say it equals $CT.
In the US, for the general basket of $S of income, I can say that I paid CT * (S / (Q+ I + S)) tax on it to Canada and get FTC for that.
In the US, for the passive basket of $I of income, I can say that I paid CT* ( I / (Q + I + S)) tax on it to Canada and get FTC for that.
In the US, I cannot use any FTC to offset any tax on the $Q of qualified dividend income.
If my income bracket is low enough, then there would be no US tax on this $Q, but if not it might be 15% or 20%.
In case there was 15% or 20% tax on the $Q in the US, then I should also add a T2209 to my Canadian tax return and claim 15% of $Q as tax that I paid on the $Q of dividend income.
(This will ultimately reduce the tax that I pay to Canada, but as I understand from nelsona's comment on another post, I should not then reduce $CT and redo the above calculation.)
If it was actually 20% tax, then some dividend income should be resourced so that it gets brought down to 15% on the US return -- I do not understand this but fortunately (or unfortunately) I am not in this situation.
----------------
Re: US dividend stocks in TFSA
Thank you nelsona, much appreciated!
I now understand that US qualified dividends (of which I get a decent amount) should be treated as US sourced.
Unfortunately (or fortunately) I am in this high tax bracket. So my qualified dividends are taxed at 15% by the US.
So to summarize my understanding, I give a digest of what I think happens in a simple scenario, and would be grateful for thoughts.
---------
Assumptions: Everything is in non-registered accounts in Canada. I am a US citizen, resident of Canada.
Amount of (US) Qualified dividends: $Q
Amount of Canadian bank interest: $I
Amount of salaried income in canada: $S
(I am avoiding mentioning canadian listed stock dividends for simplicity. Also we assume that US qualified dividends are not from canadian cross listed companies like TD).
In Canada, my taxable income is $Q + $I + $S, and I calculate my income tax on that - let us say it equals $CT.
In the US, for the general basket of $S of income, I can say that I paid CT * (S / (Q+ I + S)) tax on it to Canada and get FTC for that.
In the US, for the passive basket of $I of income, I can say that I paid CT* ( I / (Q + I + S)) tax on it to Canada and get FTC for that.
In the US, I cannot use any FTC to offset any tax on the $Q of qualified dividend income.
If my income bracket is low enough, then there would be no US tax on this $Q, but if not it might be 15% or 20%.
In case there was 15% or 20% tax on the $Q in the US, then I should also add a T2209 to my Canadian tax return and claim 15% of $Q as tax that I paid on the $Q of dividend income.
(This will ultimately reduce the tax that I pay to Canada, but as I understand from nelsona's comment on another post, I should not then reduce $CT and redo the above calculation.)
If it was actually 20% tax, then some dividend income should be resourced so that it gets brought down to 15% on the US return -- I do not understand this but fortunately (or unfortunately) I am not in this situation.
----------------
I now understand that US qualified dividends (of which I get a decent amount) should be treated as US sourced.
Unfortunately (or fortunately) I am in this high tax bracket. So my qualified dividends are taxed at 15% by the US.
So to summarize my understanding, I give a digest of what I think happens in a simple scenario, and would be grateful for thoughts.
---------
Assumptions: Everything is in non-registered accounts in Canada. I am a US citizen, resident of Canada.
Amount of (US) Qualified dividends: $Q
Amount of Canadian bank interest: $I
Amount of salaried income in canada: $S
(I am avoiding mentioning canadian listed stock dividends for simplicity. Also we assume that US qualified dividends are not from canadian cross listed companies like TD).
In Canada, my taxable income is $Q + $I + $S, and I calculate my income tax on that - let us say it equals $CT.
In the US, for the general basket of $S of income, I can say that I paid CT * (S / (Q+ I + S)) tax on it to Canada and get FTC for that.
In the US, for the passive basket of $I of income, I can say that I paid CT* ( I / (Q + I + S)) tax on it to Canada and get FTC for that.
In the US, I cannot use any FTC to offset any tax on the $Q of qualified dividend income.
If my income bracket is low enough, then there would be no US tax on this $Q, but if not it might be 15% or 20%.
In case there was 15% or 20% tax on the $Q in the US, then I should also add a T2209 to my Canadian tax return and claim 15% of $Q as tax that I paid on the $Q of dividend income.
(This will ultimately reduce the tax that I pay to Canada, but as I understand from nelsona's comment on another post, I should not then reduce $CT and redo the above calculation.)
If it was actually 20% tax, then some dividend income should be resourced so that it gets brought down to 15% on the US return -- I do not understand this but fortunately (or unfortunately) I am not in this situation.
----------------
Re: US dividend stocks in TFSA
Sorry, not going to read this. Hope you can figure it out. Next year start thinking about this in December
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing