As a result, donating to TFSA might be easier or using a buffer when estimating a trade conversion from US to Canadian dollar when estimating US funds Michelle. The exact amount of buffer can be difficult to determine. Currencies may fluctuate every day, and your financial institution may use interest rates up to a few percent compared to the published exchange rate. For security reasons, you might consider creating a 5% buffer and then after the facts, ask your financial institution to confirm the amount of Canadian dollars that will be reported to the CRA. And if you limit less than a few dollars based on your contribution, you can put it in at Canadian dollars.
Please note that your financial institution has no responsibility for tracking or confirming available TFSA rooms, it simply reports donations and withdrawals to the CRA. So ultimately make sure you don’t contribute too much.
Also, remember that if you exit a TFSA, you won’t get that contribution room immediately to contribute to another TFSA immediately. TFSA withdrawals will have an impact on your TFSA room on the next January 1st, and the net withdrawals for the year are added back to the TFSA room in the following year. If you reapply too early, you may receive a 1% fine tax.
Canada’s best dividend stocks
Foreign Withholding Tax and TFSA
Non-resident withholding tax is usually applicable when you own U.S. securities or other foreign investments in TFSA. Financial institutions are responsible for deducting your account from dividends and distributions.
Withholding tax is your ultimate tax obligation to foreign tax authorities, so Canadian residents have no tax obligations and when they buy U.S. securities in TFSA, they are not U.S. citizens.
The final thought
A diversified portfolio should include U.S. and foreign stocks to supplement the risks of Canadian stocks. Therefore, on this basis, Michelle’s use of the US TFSA may be a good investment strategy.
You can also explore alternatives to buying U.S. stocks in US dollars, such as CDRs listed on the Toronto Stock Exchange and even US-Equity ETFs. If you donate directly to TFSA, just make sure that the amount of donated in Canadian dollars does not put you in a position of over-contributing based on the current exchange rate.
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