Gemma is 41years of age and a Canadian resident. At the start of 2022, her available TFSA contribution room was $6,000.
In February2022, she contributed$5,000 into her TFSA and on September7, 2022,she became a non‑resident. OnJuly12,2023, she contributed an additional$2,500 to her TFSA. By the end of 2023, Gemma was still a non‑resident of Canada, and she had not made any withdrawals from her account.
For 2023, Gemma had to pay a tax on the contribution shemade while she was a non‑resident and she was also subject to tax on the excess TFSA amount in her account.
Gemma’s unused TFSA contribution room at the end of2022 was$1,000 (the TFSA dollar limit of$6,000 less her contribution of$5,000). Gemma was not entitled to the TFSA dollar limit of$6,500 for 2023 since she was a non‑resident throughout that entire year. Gemma’s$2,500 contribution on July12,2023, resulted in an excess TFSA amount in her account at that time of$1,500. This is the amount by which her contribution exceeded her available room.
Gemma’s tax on non‑resident contributions for 2023 was$150 because the full amount of her$2,500 contribution wasmade while she was a non‑resident and it remained in her account until the end of the year. Sincethe tax is equal to 1% per month, the tax on her non‑resident contributions was$150 ($2,500 × 1% × the 6months from July toDecember2023).
Since part of Gemma’s contribution while a non‑resident also created an excess TFSA amount ($1,500, as described above) in her account, she also had to pay the1% tax per month on this amount from July to December2023. Her taxon her excess TFSA amounts was$90($1,500×1%×6months).
For2023, Gemma had to pay a total taxof$240 on her TFSA, made up of$150 in tax on her non‑resident contribution plus$90 in tax on her excess TFSA amount.
Gemma will not accumulate any room in 2023 unless she re‑establishes Canadian residency in that year. She will have to withdraw the entire$2,500 she contributed while she was a non‑resident to avoid an additional tax of 1%per month on the non‑resident contributions aswellas on the$1,500 excess TFSA amount.
This tax, calculated on the full amount of the contribution, will apply for each month that any portion of the amount contributed while a non-resident stays in the TFSA and will continue to apply until whichever of the following happens first:
- the contributions are withdrawn in full from the account and designated as a withdrawal of non-resident contributions
- the individual becomes a resident of Canada
An individual is not subject to the tax of 1% on non-resident contributions for the month in which the full amount of the contribution is withdrawn or, if applicable, the month in which Canadian residency is resumed.
FAQs
Generally, interest, dividends, or capital gains earned on investments in a TFSA are not taxable either while held in the account or when withdrawn. There are, however, certain circ*mstances under which one or more taxes could be payable with respect to a TFSA.
Does the IRS recognize Canadian TFSA? ›
TFSA earnings are subject to U.S. income tax. You must include any earnings from your TFSA as taxable income on your U.S. income tax return, and a direct foreign tax credit cannot be recouped as there is no Canadian tax incurred on them.
What is the lifetime limit for TFSA in Canada? ›
It also means that starting on January 1, 2024, eligible Canadians will now have a cumulative lifetime TFSA contribution limit of $95,000 (see “What is the lifetime contribution limit for TFSA?” below for examples and charts).
What are the disadvantages of TFSA? ›
No tax deductions: The biggest drawback of a TFSA, is that your contributions are made with after-tax dollars and are not tax deductible, unlike the FHSA and RRSP. Contribution limits: Though there is no lifetime maximum contribution limit, there is an annual contribution limit, stipulated by the Government of Canada.
What are the tax implications of a TFSA? ›
Introduced in 2009, it works like this: any money that is deposited in a TFSA is able to grow tax-free, including any interest and capital gains earned through the account. Income earned is both exempt from personal tax during the year the gains are generated and also when the money is withdrawn.
What is the withholding tax on a TFSA? ›
If you're holding U.S. dividend stocks in your TFSA, then the IRS will expect you to pay a withholding tax of 15% on the dividends you earn. But this only applies for dividends earned on U.S. stocks, not capital gains. If you sell a U.S. stock for a profit within your TFSA, the IRS won't tax the amount you earned.
How do I report TFSA on my tax return Canada? ›
You must fill out Schedule 15 - FHSA Contributions, Transfers and Activities when you file your income tax and benefit return for the year you opened your first FHSA to let us know that you opened an account, even if you did not contribute to your FHSAs or transfer property from your RRSPs to your FHSAs in the year.
Is Canadian RRSP taxable in California? ›
But not every state follows federal tax treaties. California is a state that does not abide by federal tax treaties. According to the California State Franchise Tax Board (FTB), your RRSP is…well…more like a savings account. Translation – the income and capital gains are taxable in the year earned!
Where do I report TFSA on Canada tax return? ›
Our response: Financial institutions track and report your TFSA contributions to the Canada Revenue Agency (CRA). You do not report your TFSA contributions on your tax return.
Can I put 50k in my TFSA? ›
The TFSA contribution room is what Canadians have accumulated for every year since 2009 that they have been at least 18 years of age, had a Social Insurance Number, and been a Canadian resident. While the TFSA contribution limit for 2024 is $7,000, the maximum contribution amount is $95,000.
You can have more than one TFSA at any given time, but the total amount you contribute to your TFSAs cannot be more than your available TFSA contribution room for that year. To open a TFSA , you must do both of the following: Contact your financial institution, credit union, or insurance company (issuer).
How do I withdraw money from my TFSA CRA? ›
You can withdraw funds from your TFSA any time you want1 and you don't have to reach a certain age before you withdraw your money. Withdrawals made from your TFSA will be added back to your TSFA contribution room the following year. Your financial institution can help you make withdrawals from your TFSA.
What happens if you make millions in your TFSA? ›
If you run up a multi-million-dollar TFSA balance by trading options frequently, the CRA may deem your trading activities to be a business and tax you accordingly. In this scenario, you'll pay even more taxes than you would in a normal account, because income taxes are higher than capital gains and dividend taxes.
Why am I losing money in my TFSA? ›
Yes, you can lose money on a TFSA, but it is easy to avoid losing your money. Typically, people who lose their money on a Tax-Free Savings Account are people who are using it for more volatile investments or people who are over-contributing.
Is it better to put money in RRSP or TFSA? ›
Which is better? The short answer: For longer term savings goals, like retirement — RRSP. For short- or medium-term savings goals, like an emergency fund or buying a car — TFSA.
Is TFSA better than RRSP? ›
TFSA vs RRSP: the comparison. The major difference between RRSP and TFSA accounts centres around tax implications. RRSPs offer a tax deduction when you contribute, but you have to pay tax when you withdraw the money. TFSAs offer no up-front tax break, but you don't pay tax on any withdrawals, including growth.
Can I take money out of my TFSA without penalty? ›
TFSAs can offer hassle-free withdrawals without immediate taxes, fees, or penalties, providing financial flexibility when needed. You can withdraw from your TFSA without losing contribution room, and recontribute withdrawn amounts in the following years.
Is a TFSA better than a savings account? ›
Unlike a traditional savings account, a TFSA allows you to build an investment portfolio without paying taxes on contributions, interest earned, dividends, or capital gains.
How much does the average Canadian have in TFSA? ›
For the lowest income group—people earning less than CAD 5,000—the average TFSA balance is about CAD 17,000. For people earning between CAD 15,000 and CAD 20,000, the average TFSA balance is about CAD 21,000. TFSA balances rise to about CAD 60,000 on average for people earning more than CAD 250,000.
