New Canadian TFSA (Tax-Free Savings Acct.)

Does anyone know anything about the new Canadian Tax-Free Savings Acct., as they relate to Canadians living outside Canada? I was going to sign up for one, since it sounded like a good investment strategy, but in the eligibility, it says you have to be a resident. I am currently living in the US on a TN1 visa.

If you're filing as a non-resident in the US, i.e. on 1040NR and you're still filing as a resident in Canada then there's no particular reason you can't open a TFSA.

Personally I think they're pretty worthless at the current contribution limit of $5,000, the general idea though is that they're going to raise the limit once they've worked the kinks out.

Hi, I understand that once I become a non-resident of Canada, I am no longer allowed to make contributions to the TFSA. Is there a problem though if I fund my TFSA fully in August and become a non-resident (and depart) in October of the same year?

Thanks,
Tommy

TFSAs are not recognized as a tax shelter anywhere else, so you would pay the relevant US taxes on capital gains (which are likely zero on such a small sum) and income taxes on distributions. There's no point to them unless you're a tax resident of Canada.

I am considered a non-resident alien in the US (at least for the first couple years) so I will only be taxed on US-source income, therefore nothing in my TFSA is subject to US taxes. My initial question still remains

Well then you're not a non-resident of Canada for tax purposes. The CRA doesn't consider you to have left so nothing changes.

My understanding is that the two residency tests are mutually exclusive. I will not be a resident of Canada since I (presume) will qualify - no dependents, no real estate, no spouse, no car, no personal possessions, etc. The test has nothing to do with my level if residency in the US. In the US, since (for the first year) I will be there less than 183 days, I will subject to the substantial presence test, which I also fail, making me a non-resident alien. After 1 or 2 years, I will become a resident alien in the US.

Not quite.

The first step in becoming a Cdn non-resident is to establish tax residency elsewhere. Until you do that you cannot be declared non-resident of canada.

There is little advantage in maintaining non-resident status in the US if your income is earned there, as resident tax rates are generally favorable. An the earnings in a new TFSA are certainly not worth the effort in skirting US tax residency rules.

My understanding is that the two residency tests are mutually exclusive. I will not be a resident of Canada since I (presume) will qualify - no dependents, no real estate, no spouse, no car, no personal possessions, etc. The test has nothing to do with my level if residency in the US. In the US, since (for the first year) I will be there less than 183 days, I will subject to the substantial presence test, which I also fail, making me a non-resident alien. After 1 or 2 years, I will become a resident alien in the US.

The substantial presence test has little bearing on Canadians except in rare situations because of the tax treaty. You can stay a non-resident of the US more or less indefinitely by filing an 8833 with your 1040NR every year and maintaining residential ties to Canada. Also, if your intent is to principally reside in the US, you become a tax resident on day 1, not day 183, as soon as you establish significant ties there such as your principal residence and so on.

However if you've got no ties here, seems hardly worth it to maintain a TFSA, given that there is no capital gains tax in the US on such small investments, plus you'll probably pay more income tax doing it that way.

Bear in mind the US-Canada tax treaty is the most comprehensive treaty the US has with any other country and it was updated in 2008, so consider that when reading any tax publications. The IRS tells me that the new publication 597 (the tax treaty guide) will be on-line next month. The current one is 2006 and is out-of-date.