Help with cross-border investment questions

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Question

Hi Phil,

I just watched your most recent Q&A video and I have a question for you:

My husband and I are both dual citizens living in Canada. We can’t afford to hire an accountant every year and so we are wondering, what types of accounts and investment types are straightforward and easy enough to track so that we can keep our taxes relatively simple and continue to use online tax-filing software? For example, I know there are different implications between US and Canadian stocks, and I’ve heard that we should avoid TFSAs altogether. Any insight you can provide would be much appreciated.

Thanks,

XXXX

Answer

Hi XXXX

Thanks for the email and for supporting the YouTube channel.

Please don’t consider this actual “tax advice”, however some of the following points may be of help:

  • In most cases, especially if one of you has higher income, taking advantage of contributions to RRSPs can work well to reduce Canadian tax. They also work well for US purposes. Just make sure to report the RRSP on your FBAR and 8938 if you meet the threshold.
  • If RRSPs are not an option, investing in a regular investment account can make sense if you keep it relatively simple. Individual stocks work well, however it can be tough to properly diversify. Using Canadian mutual funds or ETFs can work, however you’ll need additional 8621 PFIC forms to complete which can be tough if the mutual fund companies do no issue QEF statements. Also, the software you’re using might not have 8621 forms. You can also invest in US securities, however if the cost of your US securities exceed $100,000 you would need to file form T1135. If the investments are in a Canadian brokerage account however you’ll be able to use the simplified filing approach to the T1135.
  • In most cases TFSAs should be avoided given any income earned in the TFSA will be subject to US tax as the account is not tax deferred for US purposes. Also, you may also have 3520 filings that you certainly not want to tackle. TFSAs can work for some if they are confident that 3520 filings are not required and that they also have additional foreign tax credit carryforwards available, however that his rarely the case.

Hope that helps.

Cheers

Phil

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