Dual Citizen TFSA Advice

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mbert
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Joined: Thu Mar 08, 2018 10:05 pm

Dual Citizen TFSA Advice

Post by mbert »

I am a dual Canadian / US citizen. I was born and raised in Canada and have recently (as of 2018) moved to the US. I am wondering if there is any advantage whatsoever in having a TFSA? My understanding is they are not recognized by the US, and since Canadian institutions generally don't issue tax forms for these accounts the holder must manually calculate taxes owed. I previously had a TFSA out of naivety but as of 2017 I backfilled all my US taxes and went through these manual calculations myself. I am just wondering if there are any cases I am not aware of where having a TFSA could be advantageous for a dual citizen.

Best,
Matt
nelsona
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Post by nelsona »

If you had a whole lot of passive income foreign tax crdits that could be used on your 1040, and were living in Canada, there might be some advantage, but not in your case.

Remember, it is not only the tax issue, but th fact that these holdingfs (as opposed to RRSP) do not enjoy any protection from PFIC reporting either, so you will be overtaxed as well.

better to put money in a Roth,m which will never be taxed by either country regardless of where you live.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
kev_indigo
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Joined: Fri Apr 17, 2015 4:18 pm
Location: Canada

Roth IRA is Taxable

Post by kev_indigo »

I don't know about this particular situation when a Canadian moves to U.S. and opens a new Roth IRA in the U.S. However, I can tell you, as a U.S. citizen who moved to Canada, I do pay taxes in Canada on my U.S. Roth IRA because I made the mistake of adding money to my Roth after I moved to Canada. My strategy is to go for capital gains in the Roth because they are only taxed at 50% in Canada, whereas dividend income from U.S. sources in my Roth is taxed as ordinary income (my current marginal rate is 47% - ouch!) I really dislike the idea that I have to give nearly half of my dividend income from the Roth over to the Canadian government - this pretty much eliminates the advantage of having a Roth in the first place. I would have been better off only having a Traditional Contributory IRA, since that is tax deferred in Canada.
clarity hound
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Location: Canada

Post by clarity hound »

mbert... If you will be living in the USA, then you are not permitted to make any contributions to a TFSA, and I don't believe you are permitted to even keep one open. My daughter started a TFSA with an online Canadian bank while in Canada. She then moved to the southern hemisphere and stayed five years. She made one additional contribution to her TFSA while there, but then basically forgot about it. Her surprise one day was a letter from the CRA stating she owed them $32,000 in penalties for having that account while she was a non-resident of Canada. (The account had a max of $11,000.) She paid them the penalty. A long letter to the CRA and the help of MP's offices resulted in the penalty being removed and her funds returned. But it was not a happy time for the family. The online bank had never told her about the residency requirement. This was in 2016/2017. If the rules have changed since, we have not heard about it.
nelsona
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Post by nelsona »

There is no residency requirement for TFSA. as many will attest here. What does happen is that contribution limit is frozen after departure. And, as your daughter forund out, contributions made while non-resident are subject to fines.

You can even open a TFSA as a non-resident, for example to receive a qualifying transfer, without penalty, due to spusal death or diverce.

So it was not the existence of the TFSA that was the problem. It was the non-resident contribution.

As to Roths, if one makes the mistake of funding a Roth while in Canada, then of course this completely undoes the benefit.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
clarity hound
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Joined: Fri Apr 13, 2018 12:22 am
Location: Canada

Post by clarity hound »

nelsona... Thank you for the quick clarification. Our experience was that the penalty for the contribution our daughter made while a non-resident was a recurring monthly penalty, and thus the large amount. Since she was a stay-at-home mom and had minimal income while down south, she did not have to file Canadian tax returns for several years. Partly because of that (we think), she was never notified by the CRA that she was being penalized, even though the penalties had been accruing for several years. It was when she relocated to the USA with her husband for his new job, and they filed, a Canadian tax return, that she received the penalty letter from the CRA.
nelsona
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Post by nelsona »

Any reason why she filed a Cdn tax return when living in US?
Clearly she doesn't know much about taxes, which adds to why she made a penalized TFSA contrib.
Hope she is getting advice now, like you are by coming here.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
clarity hound
Posts: 4
Joined: Fri Apr 13, 2018 12:22 am
Location: Canada

Post by clarity hound »

I may have mis-typed late last night, as my wife this morning does not recall if it was in fact a Canadian tax filing that triggered the TFSA Processing Unit to contact our daughter. Maybe she did not file in Canada; I'm now not sure. I'll ask her sometime. One additional note is that she had closed the TFSA account in March 2016 upon moving to the USA (just to be free of the IRS reporting issues), and it was eight months later, in November, that she was told of the penalty she owed.
mbert
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Joined: Thu Mar 08, 2018 10:05 pm

Post by mbert »

Thank you for this info, much appreciated. A follow up about non tax exempt accounts. My understanding is that if I am living in the US, I am not able to have a Canadian margin brokerage account (as indicated to me by my brokerage account). My plan is to move my non tax exempt brokerage accounts to the US. In the future, if I move back to Canada I was wondering if I should leave my non tax exempt accounts in the US. My understanding is I can continue to have a US margin brokerage account if I move back to Canada, however if this is not true than this is somewhat of a moot point.

I'm wondering what the relevant info to consider is for making an informed decision on leaving my accounts in the US. My initial thoughts are that I would need to consider what my marginal tax rate in Canada would be (since capital gains are paid as 50% of this) vs the rate I would be paying in the US. There is also the issue of considering how much of this would be long term vs short term capital gains, since the US treats these differently. As I understand it, one benefit of keeping things in the US is that the IRS is more overreaching than the CRA, and so any possible tax benefits I would receive from moving accounts back to Canada if I were to re-establish residency would ultimately still be owed to the IRS, whereas the reverse would not be true.
clarity hound
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Joined: Fri Apr 13, 2018 12:22 am
Location: Canada

Post by clarity hound »

Our daughter has also been seeking to understand the issues, and the best options, for saving money while she is in the USA, but with the possibility that she might return to Canada. (Her husband's contract may come to completion in a few years and they might return to Canada.)

If there is a good thread here on the topic, or another website somewhere that addresses the topic with good information, we'd like to know about those.
nelsona
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Post by nelsona »

You cannot have a US brokerage when living in Canada, for the same reason you can't keep the one you have now.
For non-sheltered accounts, you cannot reside in US/Canada and deal with brokerage which is not licensed in the state you live in.

Just to correct your notion of cap gains. Gains are taxed in the jurisdiction you LIVE, not where your broker is. So while your account is being clode in Canada after departure , any further tax would be by US, and same situation when you return to Canada.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
mbert
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Joined: Thu Mar 08, 2018 10:05 pm

Post by mbert »

Thank you for all the information nelsona. I believe its prudent for me to seek professional help, but would like to find someone who is knowledgeable on both the Canadian and US side of things and can also help with tax planning as opposed to just filling. Clearly Serbinski is the obvious choice but there offices appear to be in Toronto and Chicago, whereas I am in NYC. Wondering if there is somewhere on this forum or elsewhere with a list of companies (looking for someone in NYC) who are recommended.
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