Confirm Investing Strategy Before Taking the Plunge

[ethanpurdy]

US Citizens living in Canada (or elsewhere) are in a tricky situation with investing accounts due to PFIC rules. I want to confirm that I have this right (and maybe help others if they have similar questions).

I'm early in my career and want to get invested soon but am concerned I'm missing something and will be hit with surprises later. Can someone confirm that I have this right?

For retirement savings there are two practical options:

1. Build a portfolio using a small number of ETFs (or other mutual funds) that provide the necessary information for the QEF Election. For me it will be Vanguard (VXC) and iShares (XIC) funds. Don't hold a TFSA but RRSP is okay. In the RRSP it's best to hold funds that provide regular distributions. This is because with the QEF distributions are taxed at the ordinary rate not qualified rate. It also makes keeping track of the US adjusted cost basis a bit simpler and simplifies recordkeeping. With this strategy you need to keep track of US adjusted cost basis and also track QEF income (see here: viewtopic.php?p=42434&sid=79dab9253faaa ... aedda67687)


2. Avoid all Canadian listed ETFs or Mutual Funds and invest only in US listed ETFs. You can use Norbert's Gambit to convert CAD to USD and then invest in US listed funds. Still don't hold TFSA but RRSP is okay. Canadian listed ETFs in the RRSP are okay.


The benefit of #2 is significantly less record keeping and simpler tax situation. The major downside is exchange rate risk and FX fees (if you use something other than Norbert's Gambit).

#1 doesn't have as much exchange rate risk and no FX fees but the record keeping is more complex and dividends are taxed at the ordinary, not qualified, rate.


For me I think I prefer option #1. It's mostly because Norbert's Gambit takes ~7 business days in total at my brokerage (TD Direct Investing) and I can't switch. I don't like having that market risk if I'm moving so much money.


For #1 are there any other downsides I'm not seeing? How do I handle reporting any capital gains or dividends to the IRS and CRA? I assume since Canada is my tax home they will be sourced in Canada and I claim credit on my US return.

[nelsona]

1. RRSPs are not subject to PFIC rules. the manner in which they distribute their income doesn't matter. So, you might want to put non-QEF qualified investments in your RRSP, and QEF qualified outside. You don't need to keep track of adjusted cost basis either. You simply keep track of contributions, and use FMV when you take funds out of the RRSP.

2. See 1. You can hold anything in your RRSP without fear of PFIC rules.

[ethanpurdy]

Sorry my post probably wasn't clear. For the most part I'm talking about taxable accounts.

For RRSP anything is basically okay. But the majority of my investment savings will be in a taxable account (my RRSP is adjusted downward due to DB Pension Plan so I have little space every year).

[nelsona]

I was merely correcting your assumption that you should hold funds in your RRSP based on their distribution rate and QEF-eligibility. You don't have to.

[ethanpurdy]

Oh I see. Thanks for the clarification.

Currently, I'm planning to follow the Canadian Couch Potato investing strategy (3 ETFs: VXC for non-Canadian equities, XIC for Canadian equities and VAB for bonds). All three ETFs are eligible to make the QEF election as they have the necessary information provided.

My thought process with putting the bonds ETF inside the RRSP is it that it seems like it will make tax filing and record keeping a bit simpler and since distributions will be taxed less favorably it makes sense to put the ETF that gives the most distributions in the RRSP.

[Kallistrat]

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[Kallistrat]

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[Kallistrat]

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[Garganzolla]

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[Garganzolla]

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[Kallistrat]

Garganzolla wrote:
> Of course, you can invest money without sticking to a strategy, but then
> you will most likely lose all your money. There are many strategies on the
> Internet, so I recommend you to read as much as possible. Using other
> people's knowledge, you will be able to form your strategy. It is also
> important to choose a https://forexstore.com/free-forex-robots reliable
> investment object. It is quite dangerous to invest in stocks of
> ordinary companies, as there is an economic war between major countries.
> Many companies are forced to close their branches.

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[peterkyle]

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[peterkyle]

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[peterkyle]

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