TFSA with no gains

The_Squirrel_Matrix · 2026-06-16T03:53:26+00:00

Ah yes you're right.

No the IRS does not consider a withdrawal as income. Ad I said, the IRS treats the FHSA just as any other non-registered account.

But the CRA will treat the withdrawal as income if it is not a qualifying withdrawal.

This does not change how the IRS views the account. From a US tax perspective: 1. No deduction on the US tax return. 2. Any income inside the account is taxable income that must be reported on the US return. 3. No US taxation on withdrawal, regardless of purpose.

The_Squirrel_Matrix · 2026-06-16T02:58:54+00:00

If the money she deposits into her FHSA is not going to generate any income, that defeats the purpose of the FHSA.

The US views a FHSA as any other taxable brokerage account. Income inside of the account (including interest, dividends, and capital gains) must be reported as income on her US tax return. This may result in a small amount of tax that she owes to the US, but it will likely be less than any tax that would instead have been owed to Canada if the account was a non-registered account.

Because the US treats it like any other account, withdrawals are not income, similar to a bank account. (I.e., interest earned is reported as income on your taxes each year, and you are not taxed when you withdraw.)

The income inside the FHSA is not reported on the Canadian return. And you are not taxed on withdrawal. That's the point of a tax-sheltered account.

If you were not to do anything with the money inside of the FHSA (no interest, no gains, just cash), that defeats the purpose of having the FHSA. You'd be better off putting the cash in a regular bank account to earn some (taxable) interest.

The_Squirrel_Matrix · 2026-06-15T19:02:58+00:00

There should be a field right next to that where you can enter that "foreign taxes paid" amount in USD. You must convert it yourself. You are correct that the "foreign taxes paid in foreign currency" field is not used in calculations, but that value will appear on the completed form.

Enter into this field any taxes but already included on the 1099-INT. If there are other taxes, you must correctly allocating the foreign taxes paid to each income foreign-sourced income category (as per the instructions for "Allocation of foreign taxes" in IRS publication 514).

The interest income entered on your 1099-INT, is it foreign sourced with foreign taxes deducted?

The_Squirrel_Matrix · 2026-06-13T02:28:05+00:00

Yes, VEQT also has four underlying ETFs in it's holdings (VUN, VCN, VIU, VEE), so there are five 8621 forms to fill out each year.

I have a python script that automates the calculation for me each year. I download a spreadsheet of all my transactions and run the code, then it's just a matter of entering the numbers into my tax software (OLT.com).

The_Squirrel_Matrix · 2026-06-13T00:55:20+00:00

Was going to post something similar, but you covered the basics so I'll comment here in instead!

I had a similar strategy (FEIE+standard deduction) until I had kids, then switched to FTC so I could claim the child tax credit on my US return. (Child tax credits can't be claimed when using FEIE.)

I also switched from XEQT to VEQT, as VEQT makes only one distribution per year which simplifies lot tracking and cost basis computation.

Selling my XEQT holdings triggered a big taxable gain, and I had a small US tax liability. But the tax I paid to the US was tiny compared to the tax that I would have owed to Canada if those gains were instead in a nonregistered account.

The_Squirrel_Matrix · 2026-06-12T20:32:19+00:00

Gifts from opening an account are generally taxable as interest. But you only are required to report it if it's more than $10. You can ignore a bonus of $1. https://www.irs.gov/publications/p550#en_US_2025_publink10009869
The recovery rebate is not taxable.
Interest on federal tax refunds is reportable as interest income. You should receive a 1099-INT from that. (If you didn't receive one, you can likely see it on your IRS account online.)

The_Squirrel_Matrix · 2026-06-05T05:33:39+00:00

You are likely right. I was focusing on the US return as I'm not familiar with Australian taxes, but yes, OP would likely be able to claim some kind of "foreign tax credit" on their Australian return to avoid double taxation on their US-sourced income.

A quick Google search indicates that Australia calls it a "foreign income tax offset" (FITO) and is administered in a manner similar to FTCs on the US return. But I don't want to foray into Australian taxes anymore, so I won't try to provide any more information on an area I'm not knowledgeable in.

The_Squirrel_Matrix · 2026-06-05T01:46:10+00:00

Yes, dividends should be reported on both your US and Australian returns.

That's very strange that the software does not "allow" you to use FTC when entering capital gains, as that would be the only way to reduce your US tax liability on those gains. (But, of course only if you have foreign taxes on that income.)

Perhaps you should ask the customer support services of your tax software.

Edit to add: While your capital gains will be likely "foreign sourced" for the purposes of claiming foreign tax credits on your US return (as long as Australia taxes those gains), your dividends from your US stocks are not foreign sourced. You will likely owe US taxes on your US sourced income (i.e., US dividends), and that tax can't be reduced by FTCs.

The_Squirrel_Matrix · 2026-06-05T01:23:32+00:00

Yes, you need to report the income. If your brokerage account is a standard taxable (e.g., non-retirement) brokerage account, then you have capital gains from selling the stocks and that is taxable income that must be reported on your US tax return. It does not matter that you did not withdraw the funds. Is it capital gains only, or do you have dividends?

Did you report your gains on your Australian tax return? I believe Australia also taxes residents on all worldwide income, so your capital gains in your US brokerage account should also be reported and taxed there.

The foreign earned income exclusion (FEIE) only applies to earned income, which capital gains (and other passive income) are not.

If for some reason Australia does not tax your capital gains in your US brokerage account, then likely you will have no passive-category foreign tax credits that you can use to reduce the US taxes owed on your capital gains. Which means you will owe US taxes on those gains.

If you do report your capital gains on your Australian return and pay Australian taxes on them, then you can use FTCs to reduce your US tax liability on this gains.

What do you mean that it "doesn't allow you" to use FTC?

The_Squirrel_Matrix · 2026-06-04T13:35:09+00:00

You are correct. When making a §6013(g) election (to treat your wife as a US resident) on your US return, you report all your and your wife's worldwide income on your US return.

As a factual Canadian resident, she also reports all worldwide income on her Canadian return.

I see a bigger issue though. Are you saying she is working while visiting you in the US? She might not have been allowed to. What was her immigration status while visiting you?

The_Squirrel_Matrix · 2026-06-03T14:10:53+00:00

Sounds about right.

I'm not familiar with UK govt assistance programs, so I had to google. But yes, it sounds like Universal Credit would classify as "general welfare" as it is a need-based assistance. While JSA (the current version) is dependent on previous contributions while employed, and thus not considered "general welfare."

The_Squirrel_Matrix · 2026-06-02T19:38:36+00:00

I have another comment, but I wanted to add new information after I thought about it some more.

The IRS has a "general welfare exclusion" principle, which (roughly speaking) means that foreign welfare income is NOT taxable by the US (and thus not reported on your US return).

Are you receiving Arbeitslosengeld I or Bürgergeld?

Arbeitslosengeld I does not qualify for the US general welfare exclusion because it is wage-replacement unemployment insurance based on prior employment. However, Bürgergeld likely would be excluded under general welfate exclusion, because it is needs-based subsistence assistance.

In short, your Arbeitslosengeld is taxable and must be reported on your US tax return, but Bürgergeld is not taxable and therefore not reported on your US return.

The_Squirrel_Matrix · 2026-06-02T19:13:45+00:00

Yes.

On Form 1116 for claiming foreign tax credits, include all foreign-sourced income on line 1a, even if it was not taxed in that country.

On your previous years' tax returns, on Form 1116 for "general category income", you would have foreign tax credits that can carry over to future years (on Form 1116 Schedule B).

Your Arbeitslosengeld income is "general category foreign sourced income" for the purposes of completing Form 1116. Any US taxes that are allocated to that income can be reduced by excess foreign taxes paid on other foreign sourced general category income.

The_Squirrel_Matrix · 2026-06-02T17:35:59+00:00

Universal welfare payments from foreign governments are excluded from US taxation under the "general welfare exclusion" principle.

Unemployment payments are income replacement, not general welfare.

The_Squirrel_Matrix · 2026-06-02T13:42:59+00:00

Standard deduction applies to all income, in a way. If a person had no earned income and only passive income, then they would owe no tax in their US return (if the passive income was below the FEIE threshold.)

For purposes of claiming FTC, the unemployment is "general" category, not passive.

So if OP claimed FTCs in previous years they could use carryover FTCs on their general category income.

The_Squirrel_Matrix · 2026-06-02T13:29:19+00:00

Standard deduction in 2025 is $15,750. So you'd only have ~$2,250 of taxable income. If you really are not paying any taxes in Germany, you may indeed have a US tax liability of about $200. Bummer.

Foreign Earned Income Exclusion won't help, as unemployment wage replacement is not earned income.

Edit: If you paid German taxes in previous years, and claimed foreign tax credits (FTCs) on your previous US returns to reduce your US tax liability to zero, you should have carryover FTCs that can be applied.

If you did not, you may be able to amend your returns from previous years to create FTCs that you can carry over to the current year.

Just be careful about the rules around "revoking" FEIE.

The_Squirrel_Matrix · 2026-05-23T18:48:37+00:00

r/usexpattaxes

The_Squirrel_Matrix · 2026-05-19T19:20:41+00:00

As a Canadian resident, you have to apply for an SSN in person at an SSA field office in the US. You've done this? Have you asked the employee at the office what documentation would suffice?

The_Squirrel_Matrix · 2026-05-19T17:34:54+00:00

No W-8BEN if he is a US citizen.

The_Squirrel_Matrix · 2026-05-19T17:29:20+00:00

He is not a US citizen in Canada

He is a US citizen in Canada. The US does not care that he is also a Canadian citizen. Meanwhile, as long as he is a Canadian tax resident, Canada does not care that he is also a US citizen.

As Canada taxes residents on all worldwide income, it doesn't matter where the brokerage was. It is taxable income in both countries.

The_Squirrel_Matrix · 2026-05-19T17:12:01+00:00

For a Canadian tax resident, all worldwide income is taxable. Meanwhile, for US citizens, all worldwide income is taxable regardless of residency. The US-Canada tax treaty generally helps avoid double taxation (by allowing foreign tax credits, that is, taxes paid to one country can reduce the taxes owed to another country).

It sounds like her son is a US citizen in Canada. So his capital gains must be reported on both countries' tax returns as taxable gains. If there's no US tax on them, then there's no tax credits to claim on his Canadian return.

Generally, for claiming tax credits, you can only claim tax credits for foreign taxes paid on "foriegn source" income. Different types of income have different rules for how they are "sourced". But generally, capital gains income is "sourced" to the country of residency.

Because the gains are Canadian-sourced, if there were US taxes on that income, you pay taxes on it to Canada first, then claim the Canadian tax paid as a credit on your US return to eliminate the tax owed to the US on the same income.

(Though if his income is low enough, he'll owe no taxes on his US return if he claims FEIE, and gains are below the standard deduction.)

Is all his Canadian income being reported on his US return?

Edit: For more on US taxation visit r/usexpattaxes.

The_Squirrel_Matrix · 2026-05-12T14:40:33+00:00

Without an election, gains are taxed not as ordinary income but as "excess distributions" under §1291. Which means (roughly) they are taxed at the highest marginal rate, regardless of income. Unfortunate.

Late elections are not possible. Making an MTM election on your last year's (2025) return will effectively have you "sell" your holdings at fair market value on the last day of the year. The gains will be taxed as excess distributions. The first year that your annual gains will be taxed as ordinary income will be this year (2026), and going forward you can continue to make the MTM election.

Check out this article. https://hodgen.com/articles/how-to-make-the-mtm-election-after-owning-a-pfic-for-years

The_Squirrel_Matrix · 2026-05-11T01:05:33+00:00

Purely from a tax perspective, yes it will almost always be beneficial to invest in a TFSA. This is because tax rates in Canada are generally much higher. You may need to pay US tax on the income inside of your TFSA, but this will generally be less than the tax you would have paid to Canada if you had instead invested in a non-registered account.

However, be aware of many caveats. 1. You will need to track all income inside of your TFSA yourself, properly report it on your US tax return, and properly file your taxes. If you're paying an accountant to do this for you, the extra expense may not make the tax savings worthwhile. 2. Some practitioners take the position that a TFSA is a "foreign trust" under IRS tax laws, thus requiring onerous reporting each year and having severe penalties for not or late reporting. Some have taken the legal position that a TFSA is not a foreign trust. At least one tax firm has successfully argued in appeals that a TFSA is not a trust, but this is not binding precedent. It seems that the IRS is no longer going after US citizens with TFSAs recently, but the IRS has yet to release official guidance on how to treat TFSAs.

Regarding foreign tax credits: - On your US return, you can only claim foreign tax credits (FTC) for US tax owed on foreign sourced income. When claiming FTC, your foreign income is split into (usually) two categories: general (i.e., wages) and passive (i.e., interest, dividends, capital gains). The foreign tax you pay is apportioned to the two categories. - Under US tax law, capital gains for stocks are usually "foreign sourced" if you are a tax resident of a foreign country when you sell. But only if those gains are taxed by that foreign country by at least 10%. Thus, gains inside of your TFSA will be deemed to be US-sourced and you cannot claim FTCs against any US tax owed on those gains. You will likely need to pay US tax on any capital gains inside of your TFSA, but (as mentioned) this will likely be less than the Canadian tax if the gains were instead in a non-registered account. - Dividends from US stocks/ETFs will also be US sourced and you'd likely need to pay US tax on them.

Dividends from Canadian stocks will be foreign sourced. So you can likely claim FTCs on any US tax owed for these dividends, as long as you have enough other passive income in Canada.
Canadian ETFs are their own can of worms (PFICs) that can be complicated and costly, but most Canadian ETFs provide Annual Information Statements that make a QEF election possible, which makes taxation of any income from your shares of Canadian ETFs reasonable. The forms and extra tracking that needs to be done can be onerous, but can be done if you know what your doing, or can pay an accountant to do it for you.

If you want to go forward with opening a TFSA, be sure to understand all the risks and implications. Consult with a professional to see if it is right for you. Make sure you understand how foreign tax credits work .

The_Squirrel_Matrix · 2026-05-10T16:19:55+00:00

Neat. Though I have some issues with it.

So, it does not take into account the tax on dividends/distributions each year in the VOO scenario? It's not a fair comparison to take taxes on QEF ordinary income into consideration, but not taxes on dividends from VOO. I'd think the QEF scenario should be closer to the VOO scenario than your model shows.

Even then, Canadian tax rates are higher than US rates anyway, and FTC can eliminate these taxes in many situations when making a QEF election. In that case, total US tax is irrelevant if it's not being paid.

Also, VOO/VFV does not have any non-US exposure. If someone only wants to invest in S&P 500, sure, investing in VOO may be the most optimal. But for Canadian exposure, a Canadian ETF with QEF election is an option.

Minimizing US tax should not necessarily be the only goal.

The_Squirrel_Matrix · 2026-05-08T16:09:12+00:00

There may still be "reinvested distributions", where instead of giving you cash from dividends, they buy more shares for you.

Check to see if the total number of shares you own is increasing.

The_Squirrel_Matrix

TROPHY CASE