Crossborder Personal Finance

Simple advice for complex situations

  • Crossborder Implications for Canadian Investment Accounts

    Crossborder Implications for Canadian Investment Accounts

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    by

    Dave
    in

    If you’re looking for crossborder implications for US investment account types, please see this article.

    As a US person living (and investing) in Canada, there are ramifications to the various investment account types that you’ll want to consider. Here’s a quick overview of the key considerations for the most common Canadian investment account types.

    Non-Registered / Taxable Account

    Generally speaking, I’d recommend that US citizens hold their taxable account in Canada with a Canadian brokerage. For some tips on choosing an appropriate brokerage, please see this page.

    The big thing you’ll want to avoid in your non-registered account is investing in things that are classified by the IRS as Passive Foreign Investment Companies (PFICs). These are punitively taxed by the IRS and have onerous filing requirements. Thus, I avoid them. The easiest way to avoid them is by investing in US-domiciled ETFs, which is straightforward to do with a US dollar account at a Canadian brokerage. For existing US-domiciled ETF investments, you could transfer them from US brokerages to a Canadian on, which is a non-taxable event.

    Investing in Canadian dollars is trickier. The simplest way to invest in Canadian dollars while avoiding PFICs would be to invest in individual Canadian companies. Generally speaking, I’m not someone who favors dividend investing, but in this situation targeting a set of Canadian dividend aristocrats could make sense as a way to get some Canadian dollar income and favorable taxation. At the same time, this approach won’t work for every desired asset allocation. There isn’t one right way to do this, as it ultimately depends on your risk tolerance, both in terms of currency fluctuations and asset allocation.

    Registered Retirement Savings Plans (RRSPs)

    Registered Retirement Savings Plans (RRSPs) are pre-tax, tax-deferred retirement accounts where you withdrawals are taxed as income. Generally speaking, the amount you can contribute each year (aka your “RRSP room”) is 18% of your taxable income from the previous year. Thus, your first year in Canada, you won’t have any RRSP room and can’t contribute to it.

    Here are a couple of key points about RRSPs that may not be obvious to folks coming from the US:

    1. If your RRSP has an employer match, the employer’s portion also counts against your room. So if you had a 6% employer match, you could contribute 12%, and the employer contribution of 6% would bring you to the 18% match.
    2. You can use RRSP room to fund a spousal RRSP. This is useful if one person earns more than the other — the higher earner can both lower their taxes now and help balance income in the future.
    3. The RRSP calendar goes from March 1 to February 28. In other words, if you contribute in January or February 2021, it counts towards your 2020 room.

    I encourage US citizens to take advantage of RRSPs as they are recognized as retirement accounts by the IRS. To avoid double taxation, you need to do an election on form 8891 to defer the US income tax on the RRSP investment until withdrawal.

    Another nice thing about RRSPs for US citizens it that, because the IRS recognizes them as retirement accounts, you don’t need to avoid PFICs inside of an RRSP.

    If you find yourself in an employer-provided group RRSP, you may find that the offerings aren’t amazing (in terms of fees). In this case, you may want to fund it up to any employer match, but then use your remaining RRSP room elsewhere, for example in a spousal RRSP at a brokerage of your choosing where you can pick any ETF you want.

    Unlike an IRA, there isn’t a minimum age for RRSP withdrawals. RRSPs mature the last day of the calendar year that you turn 71. At that time, you can 1) take a lump sum withdrawal 2) roll it into an RRIF, from which you would make annual minimum withdrawals or 3) purchase an annuity.

    The next few account types have complicated compliance issues for US citizens. Generally speaking, my recommendation would be to avoid them.

    TFSA

    To TFSA or not to TFSA, that is the question.

    First, the good: A TFSA is a retirement account where you invest post-tax dollars and withdrawals are tax free. In other words, it’s similar to a Roth IRA, with one difference being that there is no minimum age for making a withdrawal. Another difference between a TFSA and a Roth IRA is that the room you receive each year ($7000 in 2025) is cumulative. In other words, if you don’t use it, it carries over. For Canadians, TFSAs are a great option for folks who are earning at a level where it makes sense to pay their taxes now, rather than deferring them to retirement.

    For US citizens, unfortunately, things are more complicated. The IRS doesn’t recognize TFSAs, which means they will tax any accrued earnings as they would in a taxable account. This may be further complicated by the fact that your brokerage generally won’t provide income reports for a TFSA, since this isn’t taxed in Canada. This is definitely something you would want to confirm with your brokerage before opening your TFSA.

    In addition, you would have to include your TFSA on your foreign reporting documents (e.g. FinCEN 114 and IRS Form 8938).

    Finally, there is also a question as to whether or not the IRS considers a TFSA a trust. Some crossborder tax experts view it as a trust and thus recommend filing forms 3520 and 3520-A, adding complexity (and cost) to tax returns. Personally, I lean towards NOT considering a TFSA a trust (and thus wouldn’t file forms 3520 or 3520-A). Here’s a good summary of the argument from a crossborder tax attorney who has argued this successfully multiple times.

    None of these complications are dealbreakers, but they will add cost and complexity to your US tax filings. At the same time, once you’ve accumulated a decent amount of room (say ~$25,000 CAD), it could make sense to fund a simple TFSA in a couple of USD ETFs (to avoid PFICs) with a brokerage that provides US tax slips. If you’d like to talk through your particular situation, please don’t hesitate to reach out.

    Registered Education Savings Plan (RESP)

    A Registered Education Savings Plan (RESP) is an account aimed at saving for a child’s education, similar to a 529 in the US. Unfortunately for US citizens, like a TFSA, it is not recognized as tax-free by the IRS, and thus brings complexity both in terms of taxes and accounting. The good news is that the IRS has clarified that RESPs are not trusts and thus do not require forms 3520 or 3520-A. Again, if simplicity is your goal, my general advice would be to avoid RESPs as US citizens, but there may be specific situations where they provide benefit.

    First Home Savings Account (FHSA)

    A First Home Savings Account (FHSA) is a relatively new tax-free account that lets people contribute up to $40K for your first home. Unfortunately for US citizens, it is also not recognized by the IRS and comes with the same compliance complexities of the TFSA. So, similar to those, I would generally recommend not investing in this type of account.

    One note in closing — as you can see, there are gray areas around some of these account types (e.g. a TFSA for US persons), and these policies are always changing. Thus, it is important to get the guidance of a crossborder tax expert before making any decisions.

  • Choosing a Crossborder Canadian Brokerage

    Choosing a Crossborder Canadian Brokerage

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    by

    Dave
    in

    If you’re looking for suggestions on choosing a Canada-friendly US brokerage for your US accounts, please see this article.

    As is often the case with crossborder financial issues, the Canadian side of things is more straightforward. Canadian brokerages are, as far as I have found happy to do business with US citizens living in Canada. For a taxable (aka non-registered) account, it would be great to find a brokerage that provides 1099s (for US tax returns) in addition to the T5s (for Canadian tax returns). For RRSPs, this isn’t an issue.

    Crossborder-friendly Canadian Brokerages

    Here are the providers that I’d encourage you to consider. The first two (Wealthsimple and Questrade) are the ones that I have the most experience with, but the second two (Qtrade and National Bank Direct Brokerage) also have some promising features. All four of them issue 1099s.

    1. Wealthsimple – Their Self-Directed Investing account offers commission-free buying and selling over 14,000 stocks and ETFs.
    2. Questrade – Their Cash and Margin accounts offer commission-free buying of ETFs. They don’t appear to offer a Joint Cash account (just a Joint Margin).
    3. Qtrade – Their Cash and Margin accounts offer commission-free buying and selling of 100+ ETFs, ~50 of which are US-listed.
    4. National Bank Direct Brokerage – Their Cash and Margin accounts offer commission-free buying and selling of all US and Canadian stocks, ETFs and options. There is a $100 annual administration fee, but it is waived with balances greater than $20,000.

    As with picking a Canada-friendly US brokerage, the fees and policies above are subject to change so I encourage you to reach out to potential brokerages before deciding. Below is a list of questions that may be useful in evaluating their fit for your situation.

    Crossborder Questions for Canadian Brokerages

    1. Do you provide 1099s for non-registered (aka taxable) accounts?

    Answer we’re looking for: Yes.

    Getting a 1099 will make doing your US taxes easier. All four of the Canadian brokerages above did this when I last spoke with them.

    2. Do you have commission-free trading for ETFs (and, if so, which ETFs)?

    Answer we’re looking for: Yes.

    As of this writing, Wealthsimple and National Bank Direct Brokerage offer commission-free buying and selling of lots of stocks and ETFs. Qtrade also offers commission-free buying and selling, but of a much narrower range of ETFs. Questrade only offers commission-free buying.

    3. Do you offer USD non-registered accounts?

    Answer we’re looking for: Yes.

    This is essential if you’re looking to shift your taxable (aka non-registered) account from a US brokerage to a Canadian one, which I generally recommend. By keeping your non-registered investments in US-listed ETFs, you’ll thus avoid PFIC filing requirements. As of this writing, all four of these brokerages offer this.

    4. What are the fees associated with your accounts?

    Answer we’re looking for: As low as possible.

  • Crossborder Travel Hacking

    Crossborder Travel Hacking

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    by

    Dave
    in

    Jan 2025 Update

    I would never try to talk someone into travel hacking. It’s not for everyone. If you’re like me, though, and enjoy finding loopholes and inefficiencies, it can be very beneficial. I don’t have any formal records, but we have definitely saved thousands of dollars every year for the past 20 or so years by travel hacking.

    If you’re a US person living in Canada, you have some really great travel hacking options available to you. For me, travel hacking is all about sign-up bonuses, and the US sign-up bonuses are much, much better than their Canadian counterparts. You can travel hack with Canadian cards, but it’s more about finding a loyalty program you like and focusing your spend there. In my opinion, this isn’t travel hacking — it’s just using rewards credit cards.

    Thus, with my Canadian cards, I typically focus on no-annual fee cards that give specific perks — for example a PC Financial card for groceries or a Canadian Tire card that comes with roadside assistance. I primarily use US credit cards for travel hacking.

    As a Canadian resident, I target US cards that have no foreign transaction fee. In addition to free travel, these cards also give me a way to take advantage of currency swings without exchanging money. I can use USD cards when the CAD is weak, and vice versa.

    A couple of basic travel hacking tips:

    • Chase will typically deny you if you have opened 5 or more new credit cards (from any US provider) in the previous 24 months. I don’t believe they count Canadian credit cards. Some non-Chase business cards may also be exempt.
    • If you’re married and you want to play this game, don’t add your spouse as an authorized user because that will count towards BOTH of you for Chase’s 5/24 rule. If my wife and I need to share a card, I’ll typically give my wife the physical card and put the virtual one on my phone.
    • Most sign-up bonuses can be repeated every two years but check the fine print.
    • When re-applying, make sure that you’ve let 30-60 days elapse since you closed the card. If you immediately re-apply, you’ll typically get denied.
    • For cards with annual fees, put a reminder on your calendar to either cancel the card or downgrade it to a no-fee alternative. Downgrading it is preferred since that continues the credit line (and credit line age helps your credit score) but some cards don’t have a no fee alternative available.
    • You can get business cards without a formal business (e.g. for selling things on Craigslist, a website, etc.). That said, I find most business cards have foreign transaction fees so I haven’t used these since we moved to Canada.
    • Keep records! I use a spreadsheet to track the date I applied, the annual fee, whether I’ve set up Auto Pay yet, the date I need to downgrade or cancel (if there’s an annual fee) and the date I received the bonus.

    As in most things, I aim for the Pareto Principle rather than relentless optimization. Some people take this VERY seriously (check out r/churning) but a lot of value can be had for pretty minimal effort. I typically get 2 or 3 credit cards per year for both my wife and I. It takes a few minutes to apply (and update my spreadsheet and calendar), some moderate intention to make sure we hit the spend, and then a few minutes to cancel or downgrade. In exchange, we get a significant number of free flights and hotel rooms every year. Again, I enjoy it but it’s not for everyone as it requires a bit of data tracking and can stress some folks out.

    If you’re interested, here are some of my favorite US cards for crossborder travel hacking:

    Chase Sapphire Preferred – Ultimate Rewards are a great, flexible reward. You typically get the most bang for the buck with them by booking travel through their portal and paying with points. You can also transfer points to many airlines 1:1, which can be useful. There are other Chase Ultimate Rewards cards out there, but they typically have a bigger annual fee or a foreign transaction fee, so this is the only one I use as a Canadian resident.

    Chase IHG – This is the only hotel card I really bother with. Travelling with a family, Holiday Inn Express is a good fit. They typically have pools and free hot breakfasts. Depending on the exact bonus available, I sometimes get the free one (aka Traveler) but I like these points so much that I’ll often pay for the Premier version for the additional bonus, and then downgrade to Traveler after my first year. You get every fourth night free when staying with points, so these can add up fast.

    Amex Delta Skymiles – If Delta serves your local airport, this can be a good card to pick up.

    Chase Aeroplan – The bonus for the US card is typically significantly higher than what you can get for a similar card in Canada. I don’t love Air Canada, but they’re often the best / only option. This card also gives you 25K status, which may or may not be useful.

  • Choosing a Crossborder US Brokerage

    Choosing a Crossborder US Brokerage

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    by

    Dave
    in

    If you’re looking for suggestions on choosing a US-friendly Canadian brokerage for your Canadian accounts, please see this article.

    As a crossborder investor, it is important to choose the right US brokerage (or brokerages). Ideally, you’d do this BEFORE moving, as you might find yourself with more options ahead of time — some brokerages allow you to keep accounts while living in Canada, but only to open these accounts while living in the US.

    A couple of key pieces of advice before we dive into the details:

    1. Laws and policies can change. Thus, the recommendations below are not ironclad. And please let me know if you find that any of the below is out of date.
    2. Because things can change, I recommend having accounts at a few Canada-friendly US brokerages, despite the slight complexity this adds. That way, if you need to transfer something out in a hurry, you’re more likely to have a place to transfer it to.
    3. Don’t lie about your address (e.g. by using the US address of a friend or family member). Some people do it, but there really isn’t any need.
      • That said, if your brokerage is not Canada-friendly, I would support transferring out the account BEFORE updating your address to a Canadian one.
      • And if you are lying about your address, I’d strongly recommend also using a VPN as I have heard a few stories about non-Canada-friendly brokerages using IP addresses to flag people as being in Canada.

    Below, I’ll highlight some of the brokerages that I’ve found to be more Canada-friendly. I’ll also suggest some questions to ask when looking for a potential crossborder brokerage for US accounts.

    “Canada-Friendliness” of US Brokerages

    FriendlySomewhat FriendlyUnfriendly
    Charles Schwab
    Interactive Brokers1    		Fidelity
    TIAA    		Vanguard
    • Friendly – These brokerages allow US persons to open accounts from Canada as new customers.
    • Somewhat Friendly – These brokerages allow US persons to keep existing accounts while in Canada. They may also allow existing customers to open new accounts.
    • Unfriendly – These brokerages either freeze or close all accounts belonging to US persons in Canada.

    By “accounts” in the above, I am primarily referring to retirement accounts. Few US brokerages are willing to hold taxable accounts for non-resident US persons. Some US citizens have kept taxable accounts with both Interactive Brokers and TIAA as Canadian residents, but my general recommendation for taxable accounts is to transfer them to a US-friendly Canadian brokerage. And again, these policies can and do change so please contact these firms directly to confirm.

    Crossborder Questions for US Brokerages

    Here is a list of questions that I would recommend asking potential brokerages to determine if they are a good fit for crossborder investing.

    1. Do you allow US citizens who are Canadian residents to hold taxable accounts and trade in them normally?

    Answer we’re looking for: Yes.

    This may be tricky to find, but it is possible that TIAA or Interactive Brokers may allow this. Regardless, the good news is that it’s easy to transfer your USD taxable account to a US-friendly Canadian brokerage as a non-taxable event.

    2. Do you allow US citizens who are Canadian residents to hold retirement accounts and trade in them normally?

    Answer we’re looking for: Yes.

    Many US brokerages allow this, including Charles Schwab, Fidelity, and TIAA.

    3. Do you allow US citizens who are not US residents to open accounts?

    Answer we’re looking for: Yes.

    This can also be tricky to find, but I’d recommend checking with Charles Schwab or Interactive Brokers. Other brokerages (like Fidelity) may allow you to open a new retirement account if you have an existing account with them.

    If you need to open an IRA account to roll something over into and you’re not having any luck, another possibility would be to use IRA Financial and set up a self-directed IRA. This is a more expensive option than a traditional brokerage, but it could be useful in a pinch.

    4. What are your account fees and commission prices?

    Answer we’re looking for: As low as possible. All of the brokerages mentioned here are good but, depending on your investments, some might be better than others.

    1. Interactive Brokers is a bit less user friendly that the other brokerages referenced here, any may not be suitable for all DIY investors. ↩︎
  • Crossborder Implications for US Investment Accounts

    Crossborder Implications for US Investment Accounts

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    by

    Dave
    in , ,

    If you’re looking for crossborder implications for Canadian investment account types, please see this article.

    There are a lot of opinions about how best to handle US investment accounts when moving to Canada. On one extreme, some people recommend shifting everything to Canada (e.g. rolling IRAs into RRSPs). On the other extreme, you’ll find folks who recommend keeping US accounts where they are and using the mailing address of a trusted friend or family member.

    Generally speaking, my advice is to leave US accounts where they are where possible, but only with a Canada-friendly US brokerage. Personally, I would almost never recommend using a friend or family member’s address for an investment account, with the exception of someone who was travelling for a time and didn’t have a true permanent mailing address.

    Below, I’ll get into the specific implications for common US account types.

    Taxable Accounts

    It is hard (but not impossible) to find a US brokerage that will let you hold a taxable (aka non-registered) account as a resident of Canada. Thus, for your non-registered account I generally recommend opening a US dollar account at a US-friendly Canadian brokerage and transferring your taxable holdings in kind (so it isn’t a taxable event).

    I’ll also do a future post on the crossborder implications for investments held in a Canadian taxable account as a US citizen, but in brief you’ll be OK holding your US-domiciled ETFs or stocks there.

    Traditional IRA, 401(k)s and 403(b)s

    Traditional IRAs, 401(k)s and 403(b)s are all tax-deferred retirement accounts where you contribute pre-tax dollars and don’t pay taxes until withdrawal, when these withdrawals are treated as income. They also all require participants to reach age 59.5 in order to withdraw funds without penalties. So, for our purposes here, I’m lumping them all together.

    Before moving, one consideration with these Traditional account types is whether or not it makes sense to convert them (if possible) to a Roth equivalent. This can be a great move, as taxes are typically lower in the US and Canada recognizes Roth IRAs as tax-free. Note that this conversion has to be done before you come a Canadian resident and will be taxable in the US. I’ll discuss the considerations for these conversions in a future post.

    Assuming you’re keeping your Traditional IRA, 403(b) or 401(k) when moving to Canada, you have a few options of how you could handle them.

    1. Leave them in the US, with a Canada-friendly US brokerage.. This generally what I’d recommend, and it’s a good idea to move these accounts to a Canada-friendly US brokerage before moving, if possible.
    2. Transfer the U.S. plan to an RRSP. This is doable, but there are a number of conditions that must be met in order for it to make sense tax-wise. Specifically — you need to a) have enough additional cash to make up the taxes withheld by the US plan administrator in your RRSP contribution and b) owe enough in Canadian tax to offset the entire foreign tax credit generated by the roll-over. Again, this can be done but it usually isn’t worth it. For additional info on whether or not this might be useful in your particular situation, please see these links: Link 1, Link 2
    3. Withdraw the money as a lump sum and invest it in a non-registered account in Canada. This is typically done as a last resort, due to the tax implications and potential penalties. If you’re of retirement age and the account is relatively small, though, it might make sense.

    For most people, #1 is a good approach, but it’s worth considering the other options. And if you’d like a hand in making decisions like these, please don’t hesitate to contact me.

    Roth IRA \ Roth 401(k) \ Roth 403(b)

    Roth IRAs, 401(k)s, and 403(b)s are all tax-deferred retirement accounts where you contribute after-tax dollars and don’t pay any taxes on gains or dividends even upon withdrawal. Like their traditional counterparts, they also all require participants to reach age 59.5 in order to withdraw funds without penalties.

    These Roth accounts are similar to TFSA accounts in Canada in some ways, but importantly they CANNOT be rolled over into TFSAs. Thus, with a Roth account, the best option is absolutely to keep it at a Canada-friendly US brokerage.

    The great news is that the CRA recognizes US Roth accounts, so your withdrawals will be tax-free in both the US and Canada. However, there are a couple of things that you need to do in order to make this work. Note that most of the documentation on the CRA page has to do with Roth IRAs, so it may be easier if you roll Roth 401(k)s and / or Roth 403(b)s into an IRA before moving, if possible.

    Some key Roth advice:

    1. Do not contribute to your Roth account after you move to Canada. This will contaminate the account and render it no longer tax-free.
    2. File an election on your Roth account to the CRA when you file your initial tax return.

    If you do both of these things, you will be able to withdraw money from your Roth tax-free in Canada (after age 59.5), just as you would have in the US.

    457(b)s

    457(b)s are deferred compensation accounts. They are like traditional 403(b)s and 401(k)s in that they are employer-sponsored accounts to which you contribute pre-tax dollars. The growth isn’t taxed, and then withdrawals are ultimately taxed as income. The great advantage of 457(b)s for folks interested in early retirement is that there is no age requirement in order to make penalty-free withdrawals. In other words, as soon as you stop working for an employer, you can start withdrawing money (as income) regardless of your age.

    Because 457(b)s are less common than 401(k) or 403(b)s, there isn’t much in the way of official documentation on them from the CRA. The crossborder tax accountant I work with has said that even though it’s a bit of a grey area, it is ultimately in Canada’s interest to recognize them. If they do, they’ll be able to tax the future withdrawal as income. On the other hand, if they didn’t recognize them as tax-deferred they would only be able to tax the increase from the date you become a Canadian resident.

    So, similar to the Traditional IRA / 401(k) / 403(b), I would usually recommend leaving 457(b)s where they are. If you’re considering a move to Canada in the future, though, it could also be advantageous to drawdown your 457(b) before moving and invest those assets in a taxable account instead.

    529s

    529s are not recognized by the Canadian government, and they are effectively treated as taxable brokerage accounts for Canadian income tax purposes. If possible, the most commonly recommended course of action is to transfer ownership of them to someone you trust who lives in the US.

    For More Info

    That’s a quick summary of some of the crossborder implications of several common US investment account types. If you’d like to talk more about your specific situation, please reach out.