– I assume you are aware that the U.S. does not recognize TFSAs under the
Canada-U.S. Tax Treaty. Therefore, all investment income (dividends,
interest, and capital gains) earned in the plan must be reported annually
by your husband when he files his U.S. tax return. And some or all of that
income may be taxable.
However, it’s not as simple as just filing the basic IRS Form 1040. The
U.S. Internal Revenue Service (IRS) deems a TFSA to be a trust. As such, it
requires that you file one form for reporting income and transactions, and
another annual information form. Things get even more complicated if your
husband holds a Canadian mutual fund in the TFSA, because the Canadian fund
is deemed a “passive foreign investment” with income tax calculated by a
The bottom line is that because all U.S. tax returns have to be filed in
U.S. dollars, it would make sense to have the assets in the TFSA held in
U.S. dollar-denominated securities, and to avoid Canadian mutual funds if
possible. In this case, you may need tax-preparation help from an
accountant or tax lawyer specializing in Canada/U.S. tax issues.
If you have a financial question, click through to the
on my website. Mention that it’s a “Fund Library” question. Sorry, but I
cannot guarantee personal answers, although I try my best. – Gordon Pape
is one of Canada’s best-known personal finance commentators and
investment experts. He is the publisher of
The Internet Wealth Builder and The Income Investornewsletter, which are available through the Building Wealth website.
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Notes and Disclaimer
© 2017 by The Fund Library. All rights reserved.
The foregoing is for general information purposes only and is the opinion
of the writer. Securities mentioned carry risk of loss, and no guarantee of
performance is made or implied. This information is not intended to provide
specific personalized advice including, without limitation, investment,
financial, legal, accounting, or tax advice. Always seek advice from your
own financial advisor before making investment decisions.