Ought to Canadian non-residents preserve their TFSAs?
Tax-free financial savings accounts (TFSAs) can stay tax-free for a non-resident of Canada—no less than from a Canadian perspective.
If a overseas nation taxes worldwide earnings, that will usually embody TFSA curiosity, dividends or capital beneficial properties. So, a non-resident might don’t have any tax benefit to preserving a TFSA. These accounts usually tend to be withdrawn and the funds taken overseas.
That stated, 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 a substitute withdrew their TFSA financial savings, their TFSA room would enhance by that quantity however their contribution room wouldn’t in any other case develop whereas they had 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 had been bought on the date of the account holder’s departure, triggering any accrued capital beneficial properties and ensuing earnings tax.
If the federal tax owing is greater than $16,500 on the individual’s ultimate tax return, they will select to defer fee of the tax. That is accomplished by finishing Type T1244, Election, below Subsection 220(4.5) of the Revenue Tax Act, to Defer the Fee 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 buyers want to depart them in Canada as a result of they produce other accounts, like RRSPs, that they can’t liquidate. Others preserve their investments in place as a result of they belief the regulatory surroundings in Canada greater than the one of their new nation.
Withholding tax on non-registered accounts
In case you depart 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 15% to 25% tax at supply. The speed varies primarily based on the tax treaty between the nation of residence and Canada.
This withholding tax represents your ultimate tax obligation to Canada, so you don’t want to file a Canadian tax return for this earnings.
Capital beneficial properties on securities are usually not topic to withholding tax for non-residents. Capital beneficial properties on actual property and another belongings are topic to Canadian withholding tax and even require the non-resident to file a tax return.