What is TFSA?
Tax-Free Savings Account - a Canadian savings account where investment growth and withdrawals are tax-free.
Definition
A Tax-Free Savings Account (TFSA) is a Canadian registered savings account where contributions are not tax-deductible, but investment income and withdrawals are completely tax-free. However, TFSAs are NOT recognized as tax-advantaged by the US, creating complications for US citizens living in Canada.
Who Needs to Know This?
Canadian residents 18+. US citizens in Canada should be cautious as TFSA gains are taxable for US purposes and may trigger complex PFIC reporting.
Key Deadline
Contribution room accumulates annually (currently $7,000/year as of 2024)
Potential Penalties
1% per month penalty on over-contributions
Related Forms
Common Mistakes to Avoid
- 1US citizens using TFSA without understanding US tax implications
- 2Not realizing TFSA investment income is taxable for US purposes
- 3Holding US mutual funds in TFSA (PFIC nightmare)
- 4Over-contributing when moving to/from Canada
Related Terms
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