TFSA & Reporting requirements.

[fadius]

Hello,

My wife is a dual-citizen residing in Canada. We're trying to figure out how to invest within her TFSA while avoiding additional/complicated tax reporting.

Our understanding is that we should avoid mutual funds and canadian listed ETFs as they would be considered PFIC and subject to additional reporting requirements by the IRS.

It is also our understanding that holding GICs or canadian-listed shares of individual canadian companies (eg. TD, BNS) or US-listed shares of individual companies (AAPL, TSLA) or US-listed shares of US ETFs (VTI, VOO, SCHD) would be ok (not PFIC). She wouldn't have to report or pay taxes on an capital gains / dividends on the Canadian side but would have to report and pay taxes on gains / dividends on the US side.

Questions:
-Is all of the above correct ?
-She has other US income (rental income). Safe to assume that she would have to exclude any taxes paid to IRS on income/gains from TFSA when requesting CRA FTC for tax paid to IRS?
-I was told at some point (by an accountant) that anything inside a TFSA is PFIC but as far as I can tell from reading, that's not true? From IRS' perspective, is treatment of investments within a TFSA any different from those in a non-registered account?

Thank you!

[nelsona]

Your initial statements are correct.
As to your other bullet points:
- The only US tax you will be able to include is that arising from the rental income
- As you figured out, only Cdn MFs and ETF would be PFIC, nothing else. Some consider TFSAs a trust, so you may have to report the existence of the TFSA itself (lots of debate on that).

A suggestion for your TFSA is to invest in US stocks. That way dividends would be "qualified" dividends and subject to very low tax (if any) in US
.

[fadius]

Thank you nelsona!

Would dividends from US-listed ETFs holding US companies (such as SCHD) also be considered qualified dividends and subject to very low tax in US?

[kundewayne]

Are qualified distributions likewise subject to very low US taxes for dividends from US-listed ETFs owning US businesses, such SCHD?

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[fadius]

fwiw, she has SCHD in an unregistered investment account and the investment platform sent her a US10199 listing the dividend income as 'ordinary dividend' ... not qualified dividend.

[fadius]

UPDATE

I reached out to the brokerage firm (Wealthsimple) to ask why the dividends from SCHD/VTI were shown as 'ordinary' dividends when they should be considered 'qualified' (they were "held for 60+ days in the 121 days period that starts 60 days before the ex-dividend date" which I understand to be the condition to be met for them to be considered qualified).

Their response was: "The classification of U.S. dividends as "qualified" or "ordinary" hinges on whether the security paying the dividend was held long enough to satisfy the U.S. holding period test. Determining this is your responsibility, using U.S. tax rules."

So they're essentially saying that I'm responsible for determining whether they would be qualified or ordinary ... though I'm not sure if I could potentially run into issues with the IRS if I report them as 'qualified' while they show as 'ordinary' on the 1099-DIV