Using a TFSA to save for children's college?

[nelsona]

[quote]But now I'm wondering--if I don't owe Canada any tax for the TFSA earnings, how would I take a US foreign tax credit for them?[/quote]

You wouldn't. That was the point bruce was making. You need PASSIVE income outside your sheltered accounts, to generate passive income tax and paasive income tax credits.

But I prefer your second notion: you want your TFSA to grow. Period. I would not limit istsgrowth based on the fear of paying US tax on it.

Its just something to keep in mind if you have a mix of sheltered an non-sheltered investments.

[nelsona]

bruse, the tax would be at the included rate, since, when you sit down to calculate your 1116s, you divvy up the tax and income by US definitions. So $1000 in cap gains would have 1/2 as much Cdn tax assigned to it as $1000 of ordinary income.

Remember too, that when using re-sourcing, typically you would be re-sourcing US income to write of the US tax on that income, not the Cdn tax.

[eortlund]

Thanks--I assume too, that since we have no US income except for a small savings account, if we did have to pay taxes on our TFSA, it would be at a low rate.

[nelsona]

Well it would be at the marginal rate for any other couple making your income.

Remember that you are reporting all your income in US, icluding TFSA. So interst income is interst income, and will be taxed as the last dollars you make (say 15%).

So you will pay 15% tax regardless of what other income you have.

[nelsona]

Still better than the 40% you would pay in canada.

[eortlund]

Bummer that I will have to pay taxes, even though it is a much better rate, as you say! If that's the case, I wish I could do the RESP and get the government grants--but I understand the reporting is too tricky.

[nelsona]

... and that is taxable in US as well.

[eortlund]

I guess that's another big difference. The RESP would be taxed by the US now and Canada later. The TFSA only taxed once--by the US now.