Monday, March 17, 2014

Solving US to Canada Investing Problem

We are considering moving back to Canada from the USA and I am trying to figure out the possible financial issues of this move.

One issue that the cross border financial planners keep bringing up is how to manage your US investments as a Canadian resident.  They claim that US brokers will not deal with a US citizen who is not a resident of the USA.  The further claim is that your US account will be closed and you will get heavily taxed by USA and Canada on any capital gains, etc etc.  Their solution is to turn over control of your investments to them in return for a ~1% per year fee.

As a side note, I extensively searched the web, the SEC site, the OSC site, and the IRS site to see if I could find any justification for these gloom-and-doom scenarios.  I found nothing, bupkis, nada, nil, zero evidence that this is mandated by the Canadian or US government.  You do have to file forms with various government agencies, but as long as you are honest, I could not find any prohibition.

In any case, taking this as a challenge, I looked into how you can properly deal with this cross border problem without breaking any laws or paying 1% per year.

The solutions I found cover both US IRAs, mutual funds, and brokerage accounts.

  1. Open a Canadian brokerage account, see 3. below for the name of a prospective broker.
  2. For US IRAs, transfer them all to Fidelity USA, who will let you keep them and trade within them.  This will not generate any taxable events.
  3. For US stocks and ETFs, use your Canadian brokerage account that will accept stock and ETF transfers from the USA.  Interactive Brokers (Canada) is capable of doing this.
  4. US mutual funds are the last piece of the puzzle.  Canadian brokers cannot handle US mutual funds.  The solution is to convert your US mutual funds to the equivalent US ETF.  This is feasible for most Vanguard ETFs and possibly other fund families.  This is a non-taxable transfer so no capital gains or losses are generated.  Then transfer the ETFs to your Canadian brokerage.
  5. If you cannot get your mutual funds transferred as in 4., you could be forced to sell them if your US broker will not deal with a Canadian resident and they determine you are a Canadian resident.
So in the end, you still have your IRAs, stocks, and ETFs, you can trade them as needed, and you did not generate any artificial tax except for the issue noted in point 5.  Don't take this as legal or financial planning advice, this is just my solution to the problem based on what I know.  Talk with your financial or legal advisor, but watch out for the 1% solution.

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