Author Topic: US or dual citizens - where to invest in Canada?  (Read 1928 times)

elaine amj

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US or dual citizens - where to invest in Canada?
« on: October 16, 2024, 09:28:03 PM »
Both my young adult children are dual citizens and file taxes in both US and Canada.

Just discovered there are issues with their ETF investing. DD23 invests in Vanguard funds through TD Direct Investing and DS21 is currently figuring his out.

Our cross border tax accountant is warning us of tax reporting issues so we are trying to figure out best options for both.

DD is a set it and forget it investor and does it couch potato style. She prefers TD so she doesn’t have to log into another account but can switch as necessary. She wants to stick within Canada.

DS is doing most of his investing over in the US for lower fees but will eventually need to do some Canadian investing.

The plan is to skip TFSA but neither have much RRSP contribution room (too young still) so don’t have a safe space to invest in ETFs.

My husband passed away last year and they are each getting $100k inheritance so it is important the money gets invested properly.

Where are our American friends in Canada investing? My head is spinning after a lot of reading. Ideally, they just want to do 2-3 basic ETFs that they won’t touch for many, many years as the hope is that this will be their retirement nest egg.


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daverobev

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Re: US or dual citizens - where to invest in Canada?
« Reply #1 on: October 17, 2024, 01:27:39 AM »
Just use the standard Vanguard ones. VT, VTI, VXUS depending on where they want to invest.

Absolutely avoid anything TSX listed. Avoid the TFSA.

Just note that after they hit $100k of non Canadian assets they need to file T1135 each year with their Canadian return.

Interactive Brokers might be their best bet simply because they don't have to faff for currency exchange - no need to Norbert's Gambit. They can pay in CAD, convert to USD, and invest.

They will absolutely have to keep on top of stuff. Having one or two ETFs only will make their lives SO much simpler.

DualFIRE

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Re: US or dual citizens - where to invest in Canada?
« Reply #2 on: October 17, 2024, 09:46:44 PM »
FWIW:

Dual citizen married to a Canadian.

We both have IRAs left over from our time in the US. Those are at Charles Schwab.

I hold the remaining US-listed ETFs from our portfolio in my Questrade margin and TFSA accounts. I also hold some "savings" in SGOV in the margin account.

I also manage a small portfolio for my dad in a separate Questrade margin account. It is made up of ESGV (45%), VSGX (45%), and VCEB (10%).

I think Wealthsimple is worth considering if they have >$100K (to qualify as premiere clients).


elaine amj

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Re: US or dual citizens - where to invest in Canada?
« Reply #3 on: October 18, 2024, 07:15:59 AM »
Just use the standard Vanguard ones. VT, VTI, VXUS depending on where they want to invest.

Absolutely avoid anything TSX listed. Avoid the TFSA.

Just note that after they hit $100k of non Canadian assets they need to file T1135 each year with their Canadian return.

Interactive Brokers might be their best bet simply because they don't have to faff for currency exchange - no need to Norbert's Gambit. They can pay in CAD, convert to USD, and invest.

They will absolutely have to keep on top of stuff. Having one or two ETFs only will make their lives SO much simpler.
So invest in US denominated ETFs via a Canadian broker? They’d like to avoid messing around with QEFs, PFICs, etc.

Interactive Brokers sounds like a good option not to mess with currency conversions. So put in CAD, use IB to convert to USD. Buy US ETFs like VTI. Then sell and convert back to CAD when they want to spend the money? And IB handles all these currency exchanges smoothly and at a good rate?

Can they hold a TFSA and just buy the US denominated VTI inside it? Or will they not get the right paperwork from IB to report their taxes?


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elaine amj

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Re: US or dual citizens - where to invest in Canada?
« Reply #4 on: October 18, 2024, 07:18:08 AM »
FWIW:

Dual citizen married to a Canadian.

We both have IRAs left over from our time in the US. Those are at Charles Schwab.

I hold the remaining US-listed ETFs from our portfolio in my Questrade margin and TFSA accounts. I also hold some "savings" in SGOV in the margin account.

I also manage a small portfolio for my dad in a separate Questrade margin account. It is made up of ESGV (45%), VSGX (45%), and VCEB (10%).

I think Wealthsimple is worth considering if they have >$100K (to qualify as premiere clients).
Are all your investments in USD funds? How have you been finding Questrade handles exchanging CAD to USD? And have they been giving you the necessary paperwork from your TFSA to file your US taxes?


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daverobev

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Re: US or dual citizens - where to invest in Canada?
« Reply #5 on: October 18, 2024, 07:50:00 AM »
Just use the standard Vanguard ones. VT, VTI, VXUS depending on where they want to invest.

Absolutely avoid anything TSX listed. Avoid the TFSA.

Just note that after they hit $100k of non Canadian assets they need to file T1135 each year with their Canadian return.

Interactive Brokers might be their best bet simply because they don't have to faff for currency exchange - no need to Norbert's Gambit. They can pay in CAD, convert to USD, and invest.

They will absolutely have to keep on top of stuff. Having one or two ETFs only will make their lives SO much simpler.
So invest in US denominated ETFs via a Canadian broker? They’d like to avoid messing around with QEFs, PFICs, etc.

Interactive Brokers sounds like a good option not to mess with currency conversions. So put in CAD, use IB to convert to USD. Buy US ETFs like VTI. Then sell and convert back to CAD when they want to spend the money? And IB handles all these currency exchanges smoothly and at a good rate?

Can they hold a TFSA and just buy the US denominated VTI inside it? Or will they not get the right paperwork from IB to report their taxes?


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IB is absolutely the best rate you're going to get. It's almost spot (like 0.01% off, unlike 'the usual' at forex places which are usually closer to 0.5% for the good places), and about $3 in fees. It takes seconds, no waiting for the conversion etc.

Questrade - if you go down that route you use Norbert's Gambit which takes about a week because the procedure is:

1. buy something inter-listed in whichever currency you have
2. wait 2? days for the trade to settle
3. chat to ask to journal the shares from whichever exchange to the other
4. wait for that to happen
5. sell the shares

This will also get you a good rate but has some risk depending on what you use to journal (DLR and DLR.U are good - but then does that in itself trigger PFIC stuff??; RY - Royal Bank - is dual listed so you can use that just have to be careful round ex-dividend dates etc).

I did a quick search to remind myself and yes it does seem like the TFSA itself isn't the problem, but it isn't a tax shelter for the US. As long as you hold US-listed stuff inside (or individual shares) it's fine.

However I don't think anyone will provide much in the way of documentation because the TFSA is tax free - you'll get basic reports but nothing tailored to US tax returns. I don't know how much of an issue that is.

salt cured

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Re: US or dual citizens - where to invest in Canada?
« Reply #6 on: October 18, 2024, 08:22:54 AM »
Just use the standard Vanguard ones. VT, VTI, VXUS depending on where they want to invest.

Absolutely avoid anything TSX listed. Avoid the TFSA.


What's the problem with the TSX? I just suggested my sister buy VUN instead of VTI in her RRSP since it is Canadian listed and in Canadian dollars....I'm wondering now if that was a mistake.

daverobev

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Re: US or dual citizens - where to invest in Canada?
« Reply #7 on: October 18, 2024, 02:54:36 PM »
Just use the standard Vanguard ones. VT, VTI, VXUS depending on where they want to invest.

Absolutely avoid anything TSX listed. Avoid the TFSA.


What's the problem with the TSX? I just suggested my sister buy VUN instead of VTI in her RRSP since it is Canadian listed and in Canadian dollars....I'm wondering now if that was a mistake.

If you are a US Person, holding non US domiciled ETFs or mutual funds makes IRS reporting hard. If you are not American it's fine.

DualFIRE

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Re: US or dual citizens - where to invest in Canada?
« Reply #8 on: October 18, 2024, 09:56:37 PM »
FWIW:

Dual citizen married to a Canadian.

We both have IRAs left over from our time in the US. Those are at Charles Schwab.

I hold the remaining US-listed ETFs from our portfolio in my Questrade margin and TFSA accounts. I also hold some "savings" in SGOV in the margin account.

I also manage a small portfolio for my dad in a separate Questrade margin account. It is made up of ESGV (45%), VSGX (45%), and VCEB (10%).

I think Wealthsimple is worth considering if they have >$100K (to qualify as premiere clients).
Are all your investments in USD funds? How have you been finding Questrade handles exchanging CAD to USD? And have they been giving you the necessary paperwork from your TFSA to file your US taxes?


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Yes, all my investments are in USD. That works for us because we can put CAD investments in my spouse's accounts and we have CAD employment income. So, I never do currency exchange through Questrade.

For the TFSA (as with the margin accounts), Questrade provides a 1099-DIV because they know I am a US person.

elaine amj

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Re: US or dual citizens - where to invest in Canada?
« Reply #9 on: October 18, 2024, 10:03:26 PM »

Yes, all my investments are in USD. That works for us because we can put CAD investments in my spouse's accounts and we have CAD employment income. So, I never do currency exchange through Questrade.

For the TFSA (as with the margin accounts), Questrade provides a 1099-DIV because they know I am a US person.

Very helpful. Especially about the 1099 from Questrade.

Do you now earn primarily Canadian income? Does this mean you don’t invest additional money in your US funds? If you do add money, how do you manage the exchange?

Very helpful to have real life feedback to add on to all the detailed information that @daverobev has been sharing.


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DualFIRE

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Re: US or dual citizens - where to invest in Canada?
« Reply #10 on: October 21, 2024, 05:06:33 PM »

Yes, all my investments are in USD. That works for us because we can put CAD investments in my spouse's accounts and we have CAD employment income. So, I never do currency exchange through Questrade.

For the TFSA (as with the margin accounts), Questrade provides a 1099-DIV because they know I am a US person.

Very helpful. Especially about the 1099 from Questrade.

Do you now earn primarily Canadian income? Does this mean you don’t invest additional money in your US funds? If you do add money, how do you manage the exchange?

Very helpful to have real life feedback to add on to all the detailed information that @daverobev has been sharing.


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Right, we are earning mostly CAD income and adding little in new USD to the portfolio. If I was adding new USD, though, I wouldn't exchange it.

Might be worth reading some of Millenial Revolution's stuff. They are Canadian and earned CAD when employed, but most of their current income is in USD. Here's 2 recent relevant posts:

https://www.millennial-revolution.com/build/case-study/reader-case-canadian-making-usd/

https://www.millennial-revolution.com/build/case-study/reader-case-american-making-cad/

FLBiker

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Re: US or dual citizens - where to invest in Canada?
« Reply #11 on: October 30, 2024, 09:35:22 AM »
We're a family a dual citizens (moved from the US to Canada a little over 4 years ago).

Our taxable investments are held (in USD) in US-domiciled ETFs with Questrade.  Tax sheltered (e.g. RSP) is in CAD in Canadian-domiciled ETFs with Questrade.  Canadian ETFs in a recognized retirement account (e.g. RSP) don't trigger PFIC filing requirements.

A TFSA would, though, since it isn't recognized in the tax treaty.  You could still technically do a TFSA as a US citizen, it's just more complicated -- you'd have to report gains and losses to the IRS each year AND you'd want to avoid PFICs, so keeping it in USD and investing in US-domiciled ETFs is the way to do it.  As other folks have said, Questrade is good and provides 1099s on taxable accounts.  I'm not sure if they also would provide these for TFSAs (though that would make things easier).  Regardless, I'd keep my TFSA simple -- 3 or less ETFs, buy and hold.

When I reached out to Interactive Brokers about making an account, they were not open to US citizens who are resident in Canada.  That was 4 years, ago, though, and I never followed up.

For us, currency conversion has not been a big deal, except for when we bought our house, as our taxable account was always in USD.  When we bought our house, we used Wise.  Norbert's Gambit (so far) I haven't bothered to do it.  In my opinion, DLR would absolutely be considered a PFIC, so I wouldn't use that -- Royal Bank should be OK.

salt cured

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Re: US or dual citizens - where to invest in Canada?
« Reply #12 on: November 01, 2024, 10:13:10 PM »
We're a family a dual citizens (moved from the US to Canada a little over 4 years ago).

Our taxable investments are held (in USD) in US-domiciled ETFs with Questrade.  Tax sheltered (e.g. RSP) is in CAD in Canadian-domiciled ETFs with Questrade.  Canadian ETFs in a recognized retirement account (e.g. RSP) don't trigger PFIC filing requirements.

A TFSA would, though, since it isn't recognized in the tax treaty.  You could still technically do a TFSA as a US citizen, it's just more complicated -- you'd have to report gains and losses to the IRS each year AND you'd want to avoid PFICs, so keeping it in USD and investing in US-domiciled ETFs is the way to do it.  As other folks have said, Questrade is good and provides 1099s on taxable accounts.  I'm not sure if they also would provide these for TFSAs (though that would make things easier).  Regardless, I'd keep my TFSA simple -- 3 or less ETFs, buy and hold.

When I reached out to Interactive Brokers about making an account, they were not open to US citizens who are resident in Canada.  That was 4 years, ago, though, and I never followed up.

For us, currency conversion has not been a big deal, except for when we bought our house, as our taxable account was always in USD.  When we bought our house, we used Wise.  Norbert's Gambit (so far) I haven't bothered to do it.  In my opinion, DLR would absolutely be considered a PFIC, so I wouldn't use that -- Royal Bank should be OK.

Thanks for posting this. Good information.