Author Topic: Help! US citizen "stuck" in Canada...  (Read 5916 times)

rex.toohill

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Help! US citizen "stuck" in Canada...
« on: December 05, 2014, 01:42:37 PM »
Hello Mustachians!

My apologies in advance for the dramatic title but I am in desperate need of some help starting my FIRE up here in the great white north.

I am a US citizen living in Canada for the past 10 years. I have a cushy job (about 60-80K gross income/year depending on bonuses) and my cost of living is reasonable with room for improvement:

- Rent: 500/month
- Utilities: 100/month
- Food: 700/month (I rarely eat out but do make an effort to buy organic/local)
- Car, gas, insurance: 200/month (I know...but it rains here a lot)
- Fun and Hobbies: 300/month (I am working on this with my therapist [read: girlfriend])
- Travel 250/month (mostly visiting family across the country and overseas).

I am able to squirrel away a pretty good chunk of income but my problem is finding tax efficient (essentially mustachian) place to put it being that I have to file both US and CDN taxes.

From my investigation so far it looks like the best first step is to max out RRSP contributions as these have favorable tax treatment in the US and Canada.

After the RRSP though things start to get more challenging. PFIC rules make Canadian investments held in non-registered accounts tax prohibitive (all gains are taxed as income each year).  There are all sorts of investment vehicle acronyms which are all but off limits for this reason: TFSAs, RESPs, REITs, and so on.

It seems like the best approach is to exchange currency and invest via a US account. From what I can tell so far the downsides are currency risk, exchange costs, and potential challenges when withdrawing funds while in Canada.

Has anyone taken this approach with success? If so how did you do it? If not, are there any fellow ex-pats in Canada that feel that they have a successful alternative?

Lia-Aimee

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Re: Help! US citizen "stuck" in Canada...
« Reply #1 on: December 06, 2014, 06:24:48 PM »
Do you plan on moving back to the US at any point in your life? In 10 years...in 30 years? That answer will determine exactly how much currency to hold in USD.

As someone in the same situation, I'd highly recommend a tax accountant. Shop around and find one not who only prepares your US taxes, but who gives investment advice designed to minimise your tax burden. There's some neat maneuvers that can be done depending on your net worth, investment types, and US family situation.

daverobev

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Re: Help! US citizen "stuck" in Canada...
« Reply #2 on: December 06, 2014, 06:57:33 PM »
Just buy US domiciled ETFs?

You can do that with many brokerages, Interactive Brokers are the 'best' in that they are... set up for the world. Forex is DIRT cheap.

Alternatively, Questrade + Norbert's Gambit.

*Edit* as to currency risk - invest globally. VXUS is ex-US... currency is irrelevant. I'm sure there are US domiciled Canadian ETFs too - you lose the Canadian perks, but gain US domicile.
« Last Edit: December 06, 2014, 07:00:04 PM by daverobev »

rex.toohill

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Re: Help! US citizen "stuck" in Canada...
« Reply #3 on: December 08, 2014, 10:06:19 AM »
Do you plan on moving back to the US at any point in your life? In 10 years...in 30 years? That answer will determine exactly how much currency to hold in USD.

As someone in the same situation, I'd highly recommend a tax accountant. Shop around and find one not who only prepares your US taxes, but who gives investment advice designed to minimise your tax burden. There's some neat maneuvers that can be done depending on your net worth, investment types, and US family situation.

My plan is to stay in Canada for the foreseeable future pending any family emergencies that would force me down south.  Unless of course my retirement could be significantly accelerated by moving down (or, conversely I am decelerating significantly by staying).   I do have a tax accountant at the moment. Unfortunately their advice seems to center around buying high cost mutual funds and permanent life insurance. 

I would be interested in hearing about some of your neat maneuvers. At this point I am pretty open to learning about different investment types and my family does still reside in the US.

rex.toohill

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Re: Help! US citizen "stuck" in Canada...
« Reply #4 on: December 08, 2014, 10:16:08 AM »
Just buy US domiciled ETFs?

You can do that with many brokerages, Interactive Brokers are the 'best' in that they are... set up for the world. Forex is DIRT cheap.

Alternatively, Questrade + Norbert's Gambit.

*Edit* as to currency risk - invest globally. VXUS is ex-US... currency is irrelevant. I'm sure there are US domiciled Canadian ETFs too - you lose the Canadian perks, but gain US domicile.

My understanding is that even if the fund/index is comprised of 100% US assets, purchased in US dollars it is still subject to PFIC rules if it is purchased via a non-US account on a non-US exchange. I'd love to hear more specifics as at this point most of the information out there seems to be from tax/accounting firm white papers.  I am having trouble finding first hand experience of people that use this approach. 

I have been researching Norbert's Gambit.  It seems like it may be a good approach so long as it is performed on a stock or commodity rather than a fund (thus avoiding any PFIC complications). 

Thanks for the tips on currency risk.  It looks like opening a US account is more the way to go. Now I am trying to research the implications on the Canadian tax side of US holdings/interest/capital gains. 

rex.toohill

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Re: Help! US citizen "stuck" in Canada...
« Reply #5 on: December 08, 2014, 10:28:38 AM »
Interactive Brokers ("IB") is definitely what you want if you plan to do forex regularly.

With Questrade, you'll have to wait a few days every time you journal over shares to the symbol in the other currency. For CAD -> USD, you can use DLR.TO to DLR.U.TO but for USD -> CAD there is market risk during trade settlement. Those risks are not present with IB.

I'm actually not going to offer an opinion on whether you should convert currency, but I am in the opposite position as you (Canadian citizen living in the USA), and I will say that I am short on Canada and my short position is already up a large amount since I took it on. I plan to continue to short Canada indefinitely.

Thanks for the tip on DLR and settlement times. That is helpful. I am currently in the middle of opening up a virtual broker account but maybe it is worth doing a bit more research on interactive brokers. 

daverobev

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Re: Help! US citizen "stuck" in Canada...
« Reply #6 on: December 08, 2014, 02:12:40 PM »
If you have a margin acct with Questrade there is no risk... You can spend the USD while you wait for the journal to happen.

And, what is the risk? 3 days of currency change? That's nothing.. really.

The worst thing is the bid/ask spread. IB is certainly better, hands down, if you have $10k+ to start with.

plainjane

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Re: Help! US citizen "stuck" in Canada...
« Reply #7 on: December 09, 2014, 06:37:36 PM »
replying so I can easily follow the thread

Lia-Aimee

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Re: Help! US citizen "stuck" in Canada...
« Reply #8 on: December 10, 2014, 12:48:51 PM »
-RRSP is unfortunately your only beneficial registered account. On the bright side, if you do end up moving back to the US and relying on RRSP funds in retirement, you may pay less tax than you would if you stayed in Canada (I think it's 15% flat rate, not withholding, but since I don't live in the US don't quote me on that.)
-Norbert's Gambit is the best thing ever
-I hold US currency and likely would even if I didn't have US citizenship.
-I hold some US-listed (NYSE) index funds which has made my taxation a bit simpler on one hand, a bit more complex on the other hand.  I'm not knowledgeable enough to do a good job explaning the pros and cons of this one (just know what works for my specific situation.) Long-term capital gains are taxed differently than short-term capital gains in the US, so try to avoid day trading. :)
-It doesn't appear that you own real estate, but if that happens in the future be aware that you will likely have to pay tax on your cap gains in excess of 250,000.
-Get a better accountant ASAP. 

rex.toohill

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Re: Help! US citizen "stuck" in Canada...
« Reply #9 on: August 20, 2015, 12:47:35 PM »
-RRSP is unfortunately your only beneficial registered account. On the bright side, if you do end up moving back to the US and relying on RRSP funds in retirement, you may pay less tax than you would if you stayed in Canada (I think it's 15% flat rate, not withholding, but since I don't live in the US don't quote me on that.)
-Norbert's Gambit is the best thing ever
-I hold US currency and likely would even if I didn't have US citizenship.
-I hold some US-listed (NYSE) index funds which has made my taxation a bit simpler on one hand, a bit more complex on the other hand.  I'm not knowledgeable enough to do a good job explaning the pros and cons of this one (just know what works for my specific situation.) Long-term capital gains are taxed differently than short-term capital gains in the US, so try to avoid day trading. :)
-It doesn't appear that you own real estate, but if that happens in the future be aware that you will likely have to pay tax on your cap gains in excess of 250,000.
-Get a better accountant ASAP.

Yikes, things have been busy and my investment project had to be put on hold. Lia-Amee, this is great information! Thank you!

What brokerage service do you use for Norbert's Gambit? I was hoping I could use Virtual Brokers but am a little unclear on whether using a canadian vs US brokerage will have any impact on taxation of US currency held in US funds. 

Cpa Cat

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Re: Help! US citizen "stuck" in Canada...
« Reply #10 on: August 20, 2015, 02:12:22 PM »
My understanding is that even if the fund/index is comprised of 100% US assets, purchased in US dollars it is still subject to PFIC rules if it is purchased via a non-US account on a non-US exchange. I'd love to hear more specifics as at this point most of the information out there seems to be from tax/accounting firm white papers.  I am having trouble finding first hand experience of people that use this approach. 

Are you sure you're not confusing the PFIC rules with the FBAR rules for financial accounts?

PFIC rules should apply only to where the FUND is registered/domiciled. A US domiciled fund should always be a US domiciled fund, regardless of how you buy it. BUT - you would still need to report your investment account on your FBAR if it met the filing threshold.

For example, Vanguard has this list for UK residents of funds that are both US domiciled (thus avoiding PFIC rules) and are UK reporting funds (in other words, residents of the UK have PFIC rules from BOTH countries, which puts them in a quandary - but Vanguard offers a list of "safe" funds).
https://advisors.vanguard.com/iwe/pdf/TIDQAUK.pdf

That list is more restrictive than you probably need - you are likely safe with any Vanguard ETF, but ought to double check to ensure they're US domiciled.

What you likely can't do is buy a Canadian-domiciled ETF, even if it owns only US stocks - that would not avoid the PFIC rules.

rex.toohill

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Re: Help! US citizen "stuck" in Canada...
« Reply #11 on: August 20, 2015, 06:15:08 PM »
My understanding is that even if the fund/index is comprised of 100% US assets, purchased in US dollars it is still subject to PFIC rules if it is purchased via a non-US account on a non-US exchange. I'd love to hear more specifics as at this point most of the information out there seems to be from tax/accounting firm white papers.  I am having trouble finding first hand experience of people that use this approach. 

Are you sure you're not confusing the PFIC rules with the FBAR rules for financial accounts?

PFIC rules should apply only to where the FUND is registered/domiciled. A US domiciled fund should always be a US domiciled fund, regardless of how you buy it. BUT - you would still need to report your investment account on your FBAR if it met the filing threshold.

For example, Vanguard has this list for UK residents of funds that are both US domiciled (thus avoiding PFIC rules) and are UK reporting funds (in other words, residents of the UK have PFIC rules from BOTH countries, which puts them in a quandary - but Vanguard offers a list of "safe" funds).
https://advisors.vanguard.com/iwe/pdf/TIDQAUK.pdf

That list is more restrictive than you probably need - you are likely safe with any Vanguard ETF, but ought to double check to ensure they're US domiciled.

What you likely can't do is buy a Canadian-domiciled ETF, even if it owns only US stocks - that would not avoid the PFIC rules.
Thanks for the response and the link! I think you might be right. I'll have to do some more digging on PFIC rules...