TFSA, assuming I have figured out Form 3520

stewak2 · Post by **stewak2** » Wed Sep 21, 2011 2:04 pm

Dual citizen residing in Canada commuting to work in US.
I have a TFSA ( ING bank account ) and I *think* I have figured out the 3520.
At least the IRS seems to have accepted it after several iterations.
I report the interest income on US return and the tax payable is used as FTC on my Canadian return. Since my Canadian tax is slightly higher than US, this works to my advantage.
Two questions:

1) Is it correct that the US tax payable on TFSA income ( interest ) is available as FTC against CCRA amount owing?

2) Any other reason not to continue contributing to TFSA, since I seem to have sorted out the 3520 and the paperwork is not that onerous at this point?

nelsona · Post by **nelsona** » Wed Sep 21, 2011 2:49 pm

1. No. You cannot use the US tax on your TFSA on your Cdn tax return, since (a) the TFSA income is considered Cdn-sourced, and (b) there would be no US tax on any of this income is you were not a US citizen and (c) you aren't reporting any TFSA income on your Cdn return.

2. You are still paying US tax on money that would otherwise be tax free. You should be putting the money on your house, since this really would be tax-free growth.

nelsona · Post by **nelsona** » Wed Sep 21, 2011 2:55 pm

The only FTC play you have is on your US tax return, where you would include ALL your passive income (including TFSA) and all your Cdn tax from passive income (none from TFSA of course), and see what the 1116 spits out.

nelsona · Post by **nelsona** » Wed Sep 21, 2011 2:55 pm

The only FTC play you have is on your US tax return, where you would include ALL your passive income (including TFSA) and all your Cdn tax from passive income (none from TFSA of course), and see what the 1116 spits out.

If you end up owing any US tax at all. then TFSA is hurting you.

gpancio · Post by **gpancio** » Tue Apr 01, 2014 9:25 am

I had a similar question, and I think you answered it nelsona.

Basically when figuring the FTC, if the income was *not* taxable in Canada, then it *cannot* be used in the calculation of the FTC. Correct?

In other words, as a simple example, suppose I only had a TFSA, which generated $100 of interest. Since I had no other interest or passive income, basically there will be $0 of FTC for passive income, because you cannot count the TFSA interest. Right?

If that is correct, then I assume the same goes for things such as:
- CESG
- RESP earnings.