Ought to Canadian non-residents maintain their TFSAs?
Tax-free financial savings accounts (TFSAs) can stay tax-free for a non-resident of Canada—at the least from a Canadian perspective.
If a overseas nation taxes worldwide earnings, that might usually embody TFSA curiosity, dividends or capital features. So, a non-resident might haven’t any tax benefit to conserving a TFSA. These accounts usually tend to be withdrawn and the funds taken overseas.
That mentioned, if the individual expects to return to Canada, leaving their TFSA to develop tax-free might be advantageous. If a $50,000 account grows to $150,000 they usually re-immigrate to Canada, they’d have a $150,000 tax-free account to leverage. In the event that they as an alternative withdrew their TFSA financial savings, their TFSA room would improve by that quantity however their contribution room wouldn’t in any other case develop whereas they have been overseas.
What to do with non-registered accounts
Taxable non-registered accounts are usually topic to a deemed disposition when an individual leaves Canada. It’s handled as if all of the investments have been offered on the date of the account holder’s departure, triggering any accrued capital features and ensuing earnings tax.
If the federal tax owing is greater than $16,500 on the individual’s remaining tax return, they will select to defer cost of the tax. That is performed by finishing Kind T1244, Election, underneath Subsection 220(4.5) of the Revenue Tax Act, to Defer the Cost of Tax on Revenue Regarding the Deemed Disposition of Property.
Since there’s usually no tax benefit to leaving non-registered investments in Canada, it’s widespread to see non-residents liquidate and reopen accounts overseas. Some traders want to depart them in Canada as a result of they produce other accounts, like RRSPs, that they can’t liquidate. Others maintain their investments in place as a result of they belief the regulatory setting in Canada greater than the one of their new nation.
Withholding tax on non-registered accounts
In the event you go away non-registered accounts in Canada, they are going to be topic to withholding tax on the monetary establishment. Curiosity, dividends, and mutual fund or exchange-traded fund (ETF) distributions are usually topic to fifteen% to 25% tax at supply. The speed varies based mostly on the tax treaty between the nation of residence and Canada.
This withholding tax represents your remaining tax obligation to Canada, so you don’t want to file a Canadian tax return for this earnings.
Capital features on securities will not be topic to withholding tax for non-residents. Capital features on actual property and another belongings are topic to Canadian withholding tax and even require the non-resident to file a tax return.
