Any individual that is a non-resident of Canada who has a valid SIN and who is 18 years of age or older is also eligible to open a TFSA. However, any contributions made while a non-resident will be subject to a 1% tax for each month the contribution stays in the account.
Summary of Key Points:
It's best not to invest in a TFSA as a dual citizen or expat as it causes additional complicated tax reporting and increased costs. You aren't limited by PFIC rules when investing in an RRSP as it is recognized by the Canada/US Tax Treaty.
U.S. Equivalent of the TFSA — Meet the Roth IRA. The Roth IRA is equivalent to the Canadian TFSA. Any contributions that you do make in those accounts are all post-tax.
As a US citizen living and working in Canada, you will have to pay taxes to the Canadian government and file US taxes since the US taxes all citizens regardless of where they live.
If you have social security credits in both the United States and Canada, you may be eligible for benefits from one or both countries. If you meet all the basic requirements under one country's system, you will get a regular benefit from that country.
The U.S.-Canada Tax Treaty helps avoid double taxation, but U.S. expats are still required to report to the IRS.
Assets in your TFSA are not subject to departure tax, and earnings in the account, as well as withdrawals, will still be tax-free for Canadian tax purposes. However, you will not be allowed to contribute to your TFSA while you're in the U.S.; no contribution room will accrue while you are a non-resident of Canada.
Both types of accounts shelter interest and investment income from tax. TFSA contributions are not tax-deductible. The tradeoff, however, is that withdrawals from a TFSA are tax-free. RRSP contributions are tax-deductible, which means that they can help reduce the amount of tax you pay for that year on your income.
Yes, US citizens can maintain or open new RRSP accounts while living abroad, provided they have earned income that is subject to Canadian tax. It's essential, however, to consider the tax implications in both Canada and the US.
If you hold a TFSA when you leave Canada, you can keep it and continue to benefit from the exemption from Canadian tax on investment income and withdrawals. However, you cannot contribute to your TFSA while you are a non-resident of Canada, and your contribution room will not increase.
Canadian tax residents are taxable by Canada on their global income which includes distributions from U.S. retirement plans. So, funds in an IRA, 401(k) and 403(b) may remain tax deferred until a distribution is taken from the plan.
Unfortunately, TFSA contributions can't be used to lower your taxable income. This means there is no way to decrease your income tax when contributing to a TFSA. For high income earners this makes an RRSP more appealing.
U.S. citizens who reside in Canada may establish registered accounts such as a RRSP, RESP or TFSA. However, the Canadian tax benefits arising from these registered accounts may potentially be offset by U.S. compliance obligations and/or applicable U.S. taxes.
What is the lifetime limit for TFSA? While there is no lifetime limit, the maximum contribution room for people who have lived in Canada their entire life, were 18 or older when TFSAs were first introduced in 2009, and who have never contributed to a TFSA could be as high as $95,000 in 2024.
TFSAs are best for medium to long-term investments and even to complement RRSPs for retirement. Because TFSAs are tax-free, try to maximize your profits (within your risk tolerance) to take advantage of compounding non-taxable returns in the long term.
Continue to save after age 71.
You have to convert it to a registered retirement income fund (RRIF) or payout annuity by the end of the year you turn 71. Or, you'll have to take the RRSP money in cash (and pay tax on it). But you can keep your TFSA open. And you can keep contributing to it as long as you wish.
Many financial planners say that having 60 to 70% of your current income in retirement will allow you to maintain your lifestyle in retirement. But, this rule of thumb doesn't work for everyone. If you have low income, you might need the same amount of money when you retire as you do now to cover all your basic needs.
Canadian professionals moving to the US may find higher-paying jobs, more dynamic career growth, and access to industry-leading companies. Moreover, US employment often comes with certain tax benefits, and the entrepreneurial culture in the US is unmatched.
Exemptions from the departure tax
Some assets, like pensions and assets held in registered retirement savings plans (RRSPs) and tax-free savings accounts (TFSAs), are exempt from an exit tax. They can remain tax-deferred or tax-free, as the case may be.
Canadians must continue working or leave. A solution for retirees is either to continue working part-time, self-employ, or to have applied for permanent residence (green cards) well before employment ends. An excellent route to U.S. living rights is permanent residency. Permanent is better than temporary.
If an individual, who, as a matter of fact, is considered not a resident of Canada, sojourns (i.e. is temporarily resident) in Canada for 183 days or more in a calendar year, the individual is deemed to be resident in Canada for that entire year.
How to avoid double taxation. Canadian taxpayers avoid double-taxation by making a claim on their return for a foreign tax credit (FTC). That is to say, you get to claim a credit on your Canadian return for an amount of tax paid to a foreign country.
Do I still need to file a U.S. tax return? Yes, if you are a U.S. citizen or a resident alien living outside the United States, your worldwide income is subject to U.S. income tax, regardless of where you live. However, you may qualify for certain foreign earned income exclusions and/or foreign income tax credits.