Examples – Tax payable on non-resident contributions
Gemma is 41 years of age and a Canadian resident. She opened a TFSA in 2014 and contributed $31,000 in that year. In February 2015, she contributed $49,000 and on September 7, she became a non-resident. On July 12, 2016, she contributed an additional $2,500 to her TFSA. By the end of 2016, Gemma was still a non-resident of Canada, and she had not made any withdrawals from her account.
For 2016, Gemma had to pay a tax on the contribution she made while she was a non-resident and she was also subject to tax on the excess TFSA amount in her account.
Gemma’s unused TFSA contribution room at the end of 2015 was $1,000 (the TFSA dollar limit of $10,000 less her contribution of $49,000). Gemma was not entitled to the TFSA dollar limit of $5,500 for 2016 since she was a non-resident throughout that entire year. Gemma’s $2,500 contribution on July 12, 2016, resulted in an excess TFSA amount in her account at that time of $1,500. This is the amount by which her contribution exceeded her available room.
Gemma’s tax on non-resident contributions for 2016 was $150 because the full amount of her $2,500 contribution was made while she was a non-resident and it remained in her account until the end of the year. Since the tax is equal to 1% per month, the tax on her non-resident contributions was $150 ($2,500 × 1% × the 6 months from July to December 2016).
Since part of Gemma’s contribution while a non-resident also created an excess TFSA amount ($1,500, as described above) in her account, she also had to pay the 1% tax per month on this amount from July to December 2016. Her tax on her excess TFSA amounts was $90 ($1,500 × 1% × 6 months).
For 2016, Gemma had to pay a total tax of $240 on her TFSA, made up of $150 in tax on her non-resident contribution plus $90 in tax on her excess TFSA amount.
Gemma will not accumulate any room in 2017 unless she re-establishes Canadian residency in that year. She will have to withdraw the entire $2,500 she contributed while she was a non-resident to avoid an additional tax of 1% per month on the non-resident contributions as well as on the $1,500 excess TFSA amount.
Hassan is 25 years of age and a resident of Canada, opened a TFSA in 2015. He contributed the maximum amount he could contribute in 2015 and 2016. His total contributions in 2017 were $1.000, and he made no withdrawals. Hassan became a non-resident of Canada on February 17, 2018. He contributed $3,000 to his TFSA on August 9, 2018. He re-established his Canadian residency for tax purposes on December 8, 2018.
Hassan's unused TFSA contribution room at the end of 2017 was $4,500 (the $5,500 limit for that year less the $1,000 he contributed). Hassan also accumulated an additional $5,500 TFSA dollar limit for 2018. This is because this amount is not pro-rated in the year an individual becomes a non-resident, and he was considered a Canadian resident for part of 2018. This means that as of January 1, 2018, Hassan has a total TFSA contribution room of $10,000 (the $4,500 carried over from the end of 2017 plus the annual limit of $5,500 for 2018).
Even though he has unused TFSA contribution room, a tax is applicable if any contributions are made while he was a non-resident. Since he contributed $3,000 was while he was a non-resident, he would have to pay a tax of 1% of this amount for each month from August to November 2018. He is not subject to tax for December as he re-established Canadian residency in that month.
Accordingly, Hassan had to pay $120 in tax based on his non-resident contribution ($3,000 × 1% × 4 months).
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