Q&A With Gordon Pape: Duel Citizenship and TFSAs

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A reader wants to know: my wife is a citizen of both U.S. and Canada and has a TFSA. Good idea?

Q – My wife is a dual citizen of the U.S. and Canada. Every year we have to hire an accounting firm to report to the IRS because she owns a TFSA in Canada. Should we just sell the TFSA to avoid this intrusion of the IRS into our lives? We pay more to the accounting firm to do our taxes than we generate in returns from our TFSA. – Allan C., Ottawa

A – Unfortunately, your wife is legally required to file a U.S. tax return, whether or not she has a TFSA or any other income to report. This is a requirement of all U.S. citizens, no matter where they live, and the IRS has been cracking down on non-filers. Moreover, there is no reason why your wife should have a TFSA. All the profits are taxed in the U.S. and you can’t claim a foreign tax credit in Canada because the money is in a registered plan. Consider an RRSP instead – it qualifies as a “retirement plan” under the Canada-U.S. Tax Treaty so if not subject to U.S. tax on gains made within the plan. Talk to a financial advisor that specializes in cross-border taxes. – G.P.

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