All About Estates

TFSAs and the Non-resident

With mobility on the rise, it is expected that a person leaving Canada will have to visit the rules on tax-free savings accounts (TFSA) and Canadian tax residency.   Executors may have to consider the TFSA rules if a deceased’s will calls for the transfer of a TFSA account to a non-resident will beneficiary.

If a Canadian tax resident has a TFSA and leaves Canada, the accumulated funds may remain in the TFSA account without Canadian tax consequences. The non-resident can’t make further TFSA contributions while a non-resident. If the non-resident does make a contribution then the Canada Revenue Agency (CRA) will levy a penalty tax of 1% of the contribution each month until the earlier of two dates – the date the excess contribution is withdrawn and the date non-resident becomes a Canadian tax resident.

Withdrawals may be made while a non-resident. Contribution room will not grow while a non-resident. Any withdrawals made while a non-resident will be added back to any unused TFSA contribution room, which comes available if and when the non-resident becomes a Canadian tax resident.

Non-residents account holders do not pay Canadian tax on TFSA earnings and withdrawals from the TFSA. That said, any payments made to a non-resident TFSA beneficiary from a deceased holder’s TFSA are included in the beneficiary’s income to the extent the payment exceeds the TFSA value at the time of death. Non-resident Canadian tax will be withheld on the excess and the net amount is paid to the non-resident beneficiary.

About Derek de Gannes

Derek A. de Gannes: Director, Domestic & International Tax of RSM Canada. RSM Canada is committed to the highest level of integrity, quality and professionalism and provides clients with solutions in the area of Audit, Tax and Transaction Services. Email: derek.degannes@rsmcanada.com

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