# US Expat investing advice?



## MrAdventure (Feb 26, 2015)

Background: Single Income (~60k), Family of 6 with a US citizen as a wife. We will be paying off our mortgage in 4 years (Woohoo!) and are focusing on saving for retirement.

We're looking at long term investing plans and have come up with a few issues I'd like to bounce off some more experienced individuals.

I haven't maxed out my TFSA, but I'd like to put some investments in her name, but it doesn't look like there are many options. First off, as a US citizen, the IRS doesn't count TFSA as tax sheltered meaning that is off the books right now. She's a stay-at-home mom homeschooling the kids, so there's no benefit to putting money in an RRSP in her name. We have to move the kids' RESP into my name too as not even that is tax sheltered!

So, what do you recommend?

Short term I can keep on with my own TFSA and RRSP, but in the longer term, until she starts working again (in 10+ years) what do you recommend that I do to minimize taxes paid and maximize earnings?


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## Guban (Jul 5, 2011)

Sounds like you are doing well with the big family and paying off the mortgage! Congratulations and welcome to the CMF.

Assuming that the kids are not American, RESPs sound good with the CESG, and it is hard to minimize taxes further than using your TFSA until it is maxed out. Have you considered a spousal RRSP? That will get money in her name.


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## MrAdventure (Feb 26, 2015)

*Good Questions*

@Guban Thanks. I'm behind on saving for retirement, but we're trying to balance the mortgage and investing. We're also trying to pretend that we can continue fitting 2 adults and 4 kids in a 3 bedroom home... 

Kids are dual citizens. Does that influence their RESPs? Right now the RESPs are in High interest savings. When I get them transferred to my name I was going to self direct them like the rest of our investments.

The Spousal RRSP would allow me to benefit from the Tax credit right, and the money would go into her name at retirement?

I sometimes wonder if it'll just be easier to move to the USA. sigh.


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## Guban (Jul 5, 2011)

Yes, a spousal RRSP gets the money in your wife's name if you don't withdraw within 3 calendar years of a contribution. You use your RRSP room, any you get the tax deduction, just like contributing to your RRSP.

It seems to depend on who you ask, but as I understand it, since the RESP will be used to benefit a US person, it has to file form 3520A as an investment trust, and your kids have to file a 3520 with their tax return. These are nasty forms.


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## MrAdventure (Feb 26, 2015)

So I'm better off just taking the money out and putting it in my TFSA... Moving to the USA is actually starting to look appealing.


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## MrAdventure (Feb 26, 2015)

I did some investigation and you're right. There's a double tax hit. Source.

Annualized income of the RESP (including Canadian Gov't Subsidy) is taxable if the contributor is a US citizen.
If the child is a US citizen they will be taxed when they withdraw the cash. There's also a potential $10000 fine for not reporting.


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## james4beach (Nov 15, 2012)

I'll write about the US citizen part... I don't know how this affects both of you.

US Citizens (and US Persons) should not use a TFSA at all, as you will be required to file special disclosures of this account (3520 and 3520A). It will cost hundreds of dollars through an accountant to get these complex forms filled which makes the TFSA pointless.

Additionally, _do not hold any_ Canadian mutual funds, index funds, or ETFs in non-registered accounts. These are PFICs in the view of the IRS and require complex reporting disclosures which will cause many headaches down the line. If you are a US Person, you must get rid of all your Canadian mutual funds and ETFs in non-registered accounts.

TFSAs should be closed, but you can keep an RRSP. The RRSP is still, as far as we know, a suitable place to hold things like index funds and ETFs. *It is the only place you can hold PFICs such as Canadian ETFs.*

The US Person also needs to file an FBAR report in which you list all your Canadian accounts, investment accounts, and balances.

You mentioned something about off the books. I don't know what that means. The IRS will charge you penalties of $10,000 per violation for things like: failing to report your TFSA, failing to file FBAR, etc.


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## Guban (Jul 5, 2011)

@james
Many Canadian mutual fund companies are now reacting and are supplying information to allow US persons to invest without (overly) punitive penalties. It seems like they are doing the record keeping and reporting to allow many of their mutual funds to be declared as "QEF" PFICs.

Here's a quick sample of a few that I found.

http://www.ci.com/web/common/xslt_news/newsfeed_release.jsp?lang=ENG&page=123034
http://www.sentry.ca/en/solutions/PFIC.html
https://www.fidelity.ca/cs/Satellite/en/public/products/regulatory_documents/pfic

There was another that said that TD funds did not have plans to provide this information, but things seem to be changing constantly, so who knows about the future?


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## fatcat (Nov 11, 2009)

Guban said:


> @james
> Many Canadian mutual fund companies are now reacting and are supplying information to allow US persons to invest without (overly) punitive penalties. It seems like they are doing the record keeping and reporting to allow many of their mutual funds to be declared as "QEF" PFICs.
> 
> Here's a quick sample of a few that I found.
> ...


this is the post of the day for me 

so they (the canadian financial services industry) are finally getting a whiff of the irs's giant spliff rolled purely out of arcane, sh#@ty, uselessly complex irs forms oh, my, god

this is great news, it means that the canadian financial services industry is sitting up and taking notice of the potential losses they face as usa investors shy away from their products

if enough of us don't buy these products then there will start to be some pressure when the cra and irs sit down at the table for tax treaty talk

interesting that they are selling qef, where my tax guy told me to go with mark-to-market

ps. to the op, i second what james is saying, be careful with that tfsa


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## Guban (Jul 5, 2011)

You still need to complete an 8621 for each PFIC, so that is a bit annoying, but with the fund supplied info, it shouldn't be too bad. No ETFs that I am aware of either as QEFs.

@fatcat. Mark to market is definitely punitive, tax wise, but without the QEF designation, there is no choice. I am surprised by the low cost your tax preparer charges you if you have mark to market PFICs. Lots of tricky calculations and record keeping.


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## brad (May 22, 2009)

Another thing to consider: if you both own the house (i.e., the title is in both of your names), she will have a capital gains tax hit in the US when you eventually sell it, assuming the gains are over a certain threshold (can't remember what it is off the top of my head). My accountant warned me about this: I'm a dual US-Canadian citizen and my spouse (common-law wife) and I own our house together. The house's value has appreciated considerably since we bought it. We don't plan to sell it for many years (probably not for at least another 25 years), but at that point even though I only own half the house my portion of the gain will likely exceed the threshold and I'll have taxes to pay to the US.

I got rid of my TFSA a few years ago for the reasons mentioned above, but my accountant has found nothing to indicate that it would be a problem for me to transfer money to my spouse so she can max out her TFSA, which is in her name only (and she's not a US citizen).


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## fatcat (Nov 11, 2009)

Guban said:


> You still need to complete an 8621 for each PFIC, so that is a bit annoying, but with the fund supplied info, it shouldn't be too bad. No ETFs that I am aware of either as QEFs.
> 
> @fatcat. Mark to market is definitely punitive, tax wise, but without the QEF designation, there is no choice. I am surprised by the low cost your tax preparer charges you if you have mark to market PFICs. Lots of tricky calculations and record keeping.


i do a pfic with some td e-series that i am not yet ready to sell and i provide him with the distributions and dates and so on ... i am going to talk to him next time and bring some of the information pages from sentry and fidelity to try and get more clarity because there are a couple of etf's that i would like to own ... so far i think most of the pfic reporting is for mutual funds and though etf's qualify, i don't think the irs has lowered the hammer yet as much as they have on mutuals

i believe (but am not certain) that are issues on capital gains with pfic's as well which might make them a no-go

i really hope that canada financial services starts to squeal like a pig on this because my impression is that the "usa persons" in canada probably, on average, consume more financial services than a typical canadian


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## gardner (Feb 13, 2014)

fatcat said:


> my impression is that the "usa persons" in canada probably, on average, consume more financial services than a typical canadian


I am unsure what you mean. If you mean the banks spend an inordinate portion of their effort on the various reporting and compliance issues generated by a "us person" then I can agree there alright.


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## gardner (Feb 13, 2014)

brad said:


> if you both own the house [...] she will have a capital gains tax hit in the US when you eventually sell it


Holy smokes! I had no idea... Is there any way to apply the deductability of mortage interest in the US to the picture?


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## fatcat (Nov 11, 2009)

gardner said:


> I am unsure what you mean. If you mean the banks spend an inordinate portion of their effort on the various reporting and compliance issues generated by a "us person" then I can agree there alright.


i meant to say that it would be my guess that persons in canada who must file a usa return probably have, on average, a higher average asset portfolio than the typical canadian investor

which means that, if they stop buying canadian financial products that require complex reporting like mutuals and etf's for example, the canadian financial service industry will take a significant hit

the actions by vanguard and sentry for example would imply that they are aware of how reporting requirements are likely to make usa-tax persons inclined to simply not own products that require pfic reporting

james's posts over the last year or two demonstrate this point fairly clearly


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## brad (May 22, 2009)

gardner said:


> Holy smokes! I had no idea... Is there any way to apply the deductability of mortage interest in the US to the picture?


Not that I'm aware of. We report my mortgage interest to the US when I file my income tax return every year, but it doesn't affect anything (because I only pay taxes to the Canadian federal and provincial governments).


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## james4beach (Nov 15, 2012)

Yes our financial industry is awakening to the fact that the crazy US laws are a threat to their business. Perhaps they will lobby the US govt to get some exemptions for Canada.

I'm bitter about the limitations that these US laws have imposed on my investment activities.


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## humble_pie (Jun 7, 2009)

james i don't see how canadian services in any sector can lobby the US govt. I think all financial services can do is lobby the canadian govt to be less docile & compliant with washington.

in line to cause an uproar next are US estate taxes. These don't seem to have got up to speed yet, but i believe that they will.

while US estate taxes will bypass small-to-medium estates to hit hard on larger estates, the controversial aspect is that such taxes are scheduled to be levied upon every large estate that holds US assets such as stocks. A canadian investor might never have set foot in the US of A but if he holds as few as 10 shares of GOOG his estate might be liable for US estate taxes.

the IRS will include canadian residences, RRSPs & other registered plans in the inventory of estate assets, so with housing prices the way they are, it won't be uncommon for an estate to top the $1M mark.


EDIT: on 2nd thought i believe the answer as to why the canadian financial services industry will be reluctant to even lobby ottawa has already been posted.

making sure that home country head office of foreign Finance Group complies with the IRS is the price that washington demands for a subsidiary of home country finance group to carry on business in the US of A.

one recalls the long-drawn-out stories about paribas & UBS, who kowtowed in the end.

i imagine there's too much at stake in their US operations for canadian banks to do anything other than make nice with washington.


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## Echo (Apr 1, 2011)

This is one of the better explanations of the tax implications of a U.S. citizen living in Canada. Check out the last point (#10) which talks about renouncing U.S. citizenship and some of the implications to consider - http://advisors.tdwaterhouse.ca/public/projectfiles/05db7a1d-6bc1-4548-8281-0a5cd5730a95.pdf


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## fatcat (Nov 11, 2009)

humble_pie said:


> james i don't see how canadian services in any sector can lobby the US govt. I think all financial services can do is lobby the canadian govt to be less docile & compliant with washington.
> 
> in line to cause an uproar next are US estate taxes. These don't seem to have got up to speed yet, but i believe that they will.
> 
> ...


pie, i believe your last argument is the best argument for why i have maintained that fatca will stand and resistance is useless

the two biggest companies in our country td and ry have extensive usa operations (as does bmo to a lesser extent) and they are eager to continue, they will be lobbying for a get-along regime with washington

i don't agree that the canadian financial services industry in general will be reluctant to lobby (and of course when i say lobby i mean lean on our politicians to bargain with the usa when it comes to tax treaty time) at all since i believe that this hurt on their industry is just beginning since so many canadians that should be complying with the new law are not (never mind the "resisters" who we see on our own forum, i told a us born woman about the law the other day and she just wrinkled her nose and said "i'm not going to bother")

IF and when full compliance comes along and people read the pdf that echo posted and get a full grip on the compliance cost and complexity we may see a huge hit on canadian financial services industry as people just start to simplify their assets and only hold "safe" assets

of course, add 20% more complexity to the system that exists and it will break, i will be relinquishing myself just so i can get a good nights sleep

this will eventually really hurt the usa in manifold ways


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## james4beach (Nov 15, 2012)

This is true, yes all those Swiss banks caved. They had taken stands and all gave in one by one. Wegelin bank (the oldest private bank in Switzerland) was one of the first to make a stand (link to their document) and their document and flippant behaviour enraged the US administration. The letter they published was ground breaking in the investment banking world. Fast forward a few years later, and they paid massive penalties and had to shut down their bank. The USA shut down Wegelin.

The US's economic and tax might is unquestionable. But it's definitely hurting them. For instance, though I moved to the US, I left all of my assets in Canada. The US is a kind of place that repels money, due to their tax policies. I cannot imagine bringing my capital to the US. So many wealthy people try so hard to remove their capital from the US, and I'd be _crazy_ to bring my capital into the US.


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## humble_pie (Jun 7, 2009)

only yesterday the worst nightmare for a parent of a late teen was What if they start dating an ISIL.

now the worst nightmare goes What if they marry an American.


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## MrAdventure (Feb 26, 2015)

A lot of useful information here. 

As an update, we sold the house and bought a few acres for the kids. We will be filing US taxes (me as a US resident for tax purposes) to take advantage of rebates related to children. Once the kids are out of the age or the rebate disappears I'll denounce my US status for tax purposes and we'll continue filing US taxes.

I will have to move my TFSA money into an RRSP, which makes it infinitely less versatile. 

The kids RESP are my current consternation... Not sure if I'll withdraw and lose the Gov't portion, or wait and assume that the kids will file their US taxes and as long as they withdraw under the minimum taxable limit will be ok. Have no clue where else I would put savings for the kids.


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