Tax-Free Savings Accounts and Departure Taxes

How do the new Tax Free Savings Accounts, on deck for investors starting in 2009, affect those who are leaving Canada? What are the right planning opportunities for minimizing departure taxes? These are questions advisors serving clients this tax season may hear. Consider these facts, from Knowledge Bureau Faculty Member John Mill, author of the Knowledge Bureau Certificate Course Cross Border Taxation, for his research on the subject:

In Canada, the new Tax Free Savings Account (TFSA) is not caught by the departure tax rules. However, no TSFA contribution room is earned for those years where a person is non-resident. In addition, any withdrawals while non-resident cannot be replaced.

The US does not recognize the TFSA, therefore any realized income ought to be non-taxable when removed after emigration. However any capital appreciation will be taxable. Therefore it will make sense to remove capital properties from the TFSA on a tax free basis immediately prior to emigrating and then trigger the deemed disposition on a nominal gain on departure.

Residency and Non-residency issues are covered in detail in The Knowledge Bureau's EverGreen Explanatory Notes. . .can you really afford not to have EverGreen at your fingertips this month? For more information and to subscribe: click here.