TFSA’s and Non-residents of Canada
One of the things you need to open a TFSA is a valid Canadian social insurance number. But there’s nothing that says you actually have to be living in Canada, or that dual-citizens can’t hold TFSAs as well. You can, it’s just a bit more complicated.
Are you a Canadian but a non-resident?
- If you live outside Canada full-time, you are a non-resident
- If you live outside Canada at least 6 months out of every year but have a Canadian spouse or common-law partner, children, or a house in Canada, you are a Canadian resident.
- If you live outside Canada at least 6 months out of every year and don’t have a Canadian spouse or common-law partner, children, a house in Canada, or any other significant social ties, you are a non-resident
So, if you are a non-resident, what can you do? You can still have a TFSA, but there are tax consequences. You will have to pay a tax of 1% per month on anything you contribute while a non-resident (there are some exceptions such as contributions transferring over from deceased holder’s TFSA). And you’ll continue to get dinged with this 1% tax until you withdraw everything from the TFSA, or you become a Canadian resident.
Fortunately, non-residents can enjoy the same perks as Canadian residents when it comes to the tax-free status of the account. Just like Canadian residents, non-residents can enjoy your earnings tax-free, and make withdrawals without it counting as income. But this only applies to Canadian taxes…if you are a dual citizen you could get taxed by your other country of citizenship for having foreign (to them) income!
Also, as a non-resident you aren’t allowed to accumulate contribution room like Canadian residents can. If you make regular contributions while a non-resident, chances are you’ll reach your contribution limit quickly and end up over-contributing. At that point you’ll have to pay the 1% over-contribution penalty in addition to the 1% non-resident tax. So if you are a non-resident, it could cost you a lot to maintain a TFSA, and may not be worth it if the penalties are a significant fraction of your funds!