Do I need to report interest income from a Canadian TFSA (Tax Free Savings Account)?

[samcali]

My wife is a Canadian citizen and has $6000 Canadian in a TFSA (Tax Free Savings Account).  Last year (2022) her account made $15 Canadian in interest.  Do I need to report the $15 Canadian interest (i.e. create a 1099-INT with $15 Canadian income)?  Or is the fact that in Canada, the interest would not be taxed mean that we also don't need to pay taxes in the U.S.?

[JBedford]

Hi, @samcali , thanks for the question! The answer is yes, you will need to report the interest income on the US return. The income is not sheltered from taxation in the US. Hope this helps, please let me know if not! 

[MarthaT]

Thank you for your question.  

Yes, you need to report the interest.  It is a really good question and I found the following information:

Instructions on Form 1040 page 23 Foreign-source Income - (https://www.irs.gov/pub/irs-pdf/i1040gi.pdf) - "You must report unearned income, such as interest, dividends, and pensions, from sources outside the United States unless exempt by law or a tax treaty."  Please see Canada Tax Treaty - ARTICLE XI - Interest - at https://www.irs.gov/pub/irs-trty/canada.pdf.

The following is from Publication 519 page 11 Source of Income - (https://www.irs.gov/pub/irs-pdf/p519.pdf)  - "If you are a resident alien, you must report all interest, dividends, wages, or other compensation for services, income from rental property or royalties, and other types of income on your U.S. tax return. You must report these amounts from sources within and outside the United States."

It seems that you need to report the interest.  I hope this answered your questions

Thank you so much

[AR_CPA2]

Also you will convert this Canadian amount to U.S. dollars when you report this income on the U.S. tax return:

https://www.irs.gov/individuals/international-taxpayers/foreign-currency-and-currency-exchange-rates