Do Americans have to report interest income from a TFSA on a tax return?

Do Americans have to report interest income from a TFSA on their U.S. tax return?

Short answer: yes, but there’s a lot more to it. Failing to fill in the correct forms can result in stiff penalties


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Tax implication tfsaQ If I’m an American living in Canada, have a TFSA, but never used it to invest, just holding it as a savings account, do I still need to report it on the U.S. tax return? If so, what forms are required?
—Thanks, Jimmy

A Any income received in a TFSA needs to be included on a U.S. tax return as income. In addition, if the account is set up as a trust (look for an Agreement of Trust in the fine print of the application), you will need to file foreign trust forms (Forms 3520-A & 3520) with the IRS each year.

Failure to file or late filing of either of these forms, when required, can attract a $10,000 U.S. penalty. Further, if you have mutual funds or ETFs as investments, you may also have to file Form 8621 to report the existence of/and income from a PFIC (passive foreign investment company).

The taxation of these types of investments can be punitive if not dealt with early and by a tax professional that understands the tax regulations around them.

Cleo Hamel is a senior tax expert with American Expat Taxes in Calgary

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