US Dollar TFSA’s
For one reason or another, you may want to your TFSA to hold US funds. Maybe you want to avoid costly currency exchange rates. Or maybe the stocks you want to buy and sell in are in US dollars. Or maybe you like to keep your US and Canadian TFSAs separate for other reasons.
In any event, most registered accounts, including TFSAs, RRSPs, and RRIFs, allow for the option of holding US funds instead of Canadian funds (RESPs are an exception). Simply ask your bank or credit union if they offer this option, though most do. If your TFSA is a self-directed-one, check with the brokerage firm.
US transactions and their Canadian equivalent
Your TFSA contributions are allowed to be in US dollars. Be aware that even though the money sitting inside the TFSA may be in US dollars, any receipts or withdrawal records for tax purposes will actually be in the Canadian dollar equivalent. As well, any contributions you make will be recorded in Canadian dollars, so when keeping track of your contribution room, make sure you are working with Canadian amounts and not US ones. When the US and Canadian dollar were close to par, this wasn’t much of an issue, but with the current exchange rate, you may inadvertently over-contribute nowadays!
Tax consequences for US-dollar TFSAs
There are no tax consequences for trading in US dollars since by definition, the contents of a TFSA are tax-sheltered. There may be transaction costs or maintenance fees, but these come from your bank and are not associated with the CRA. Check with your bank or brokerage firm to see if there are internal fees associated with holding US currency in your TFSA.
If you choose to de-register the TFSA, or it de-registers itself after a period of time (eg. if you have a TFSA arrangement in trust with an expiry date), then the money sitting inside the TFSA will become taxable. When this happens, the CRA will convert the value from US dollars to Canadian dollars first, and then tax you on the Canadian equivalent.