US dividend stocks in TFSA

[pokka]

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.

[nelsona]

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.

[pokka]

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.
----------------

[pokka]

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.
----------------

[nelsona]

Sorry, not going to read this. Hope you can figure it out. Next year start thinking about this in December