U.S. Citizen in Canada Investing in non-RRSP Mutual Funds

Ruth · Post by **Ruth** » Sat Apr 01, 2006 4:24 pm

I am a U.S. citizen, stay-at-home mom, living in Canada. I'd like to invest some of my money in a non-RRSP mutual fund.

Is it generally understood that for me to invest in a Canadian mutual fund company in this manner is just not worth the hassle, given the onerous filing requirements imposed by the IRS (Form 3520)? Particularly with equity funds, there can be a significant advantage, tax-wise, to investing in my name rather than my husband's. I realize that I can't invest my husband's money under my name in order to split income, but I have some of my own money (past earnings, CCTB payments, inheritance) that I'd like to invest in my name.

I'd be willing to invest instead in a U.S. mutual fund company, but I don't think this is even allowed.

Anyone have any advice on this?

cbk · Post by **cbk** » Sat Apr 01, 2006 9:31 pm

I'm a US citizen who lived in Canada for many years. We invested in quite a few US funds while we lived there. I let them know when we set up accounts that we were US citizens living in Canada. A few wouldn't let us set up accounts (can't remember who) but T Rowe Price and American Century did. You will run into tax issues if you return to the states, as canada will want a share of your profits. And as always, you will owe US taxes on them every year.

Ruth · Post by **Ruth** » Sun Apr 02, 2006 3:29 pm

It sounds like you did *not* have to pay Canadian tax until you left Canada. Forgive me--I'm not all that familiar with Canadian tax law--but why wouldn't you pay Canadian tax each year as well? Did the U.S. Canada Tax Treaty help you avoid double taxation?

nelsona · Post by **nelsona** » Sun Apr 02, 2006 4:37 pm

I think he is referring to the tax on the periodic distribitions that most funds give out, which are taxable every year, even without selling.

Rickerbucks · Post by **Rickerbucks** » Mon Apr 03, 2006 8:36 pm

Well I think the key question is, how long do you think you are going to be in Canada? If its going to be for some time, then I don't think you need to worry about investing in CDN based funds. I know that you will have to add this info to your US tax return (T5's) but no matter WHAT you invest in you have to deal with that.

I should point out that US financial institutions and fund companies are technically not ALLOWED to sell to CDN RESIDENTS. (and vice versa).

Should you return to the US then you would either have to SELL the funds or hold them and ultimately sell them at your leisure. But once you move to the US, you cannot "trade" them, or reinvest in another fund.