Canadian Resident with a US brokerage acccount

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reis
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Joined: Mon Dec 04, 2006 9:15 pm

Canadian Resident with a US brokerage acccount

Post by reis »

I have a US Charles Schwab account as well as a Vanguard account. When I tried to have the address changed to a Canadian one, I was told that the address could not be a Canadian.

I have just moved back to Canada. Can I still keep my US brokerage accounts? What gives?
Norbert Schlenker
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Post by Norbert Schlenker »

You can keep an IRA (or ten IRAs if you like).

You can't keep a taxable account in the US. The broker doesn't want to get slapped by a securities commission. Is there something stopping you from moving the securities to a Canadian broker?
reis
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Joined: Mon Dec 04, 2006 9:15 pm

Post by reis »

I called E*TRADE Canada and they said that I could move over the stocks in my portfolio, but not the mutual funds. Apparently there are different regulations for mutual funds in Canada so the US ones cannot be brought over. Which means I have to liquidate those assets?

Any idea on how quickly does Revenue Canada expect me to do this?
nelsona
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Post by nelsona »

If these are non-retirement accounts, you are going to have a problem.

Us brokers are not allowed to trade securities for Cdn residents unless they are registered in their province. While a brokjer could keep your accouint open (allowing you only to SELL, or transfer your holdings to canada) most take the safer position of requiring you to close your account.

Transfer your stocks to a Cdn broker. If you have mutual funds, you will most likely have to sell them.

I'm not a fan of giving a phoney address.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
nelsona
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Post by nelsona »

Any idea on how quickly does Revenue Canada expect me to do this?
Its not revenue canada (CRA), it your provincial securities regulators that prohibit trading. Even a person living in Nova Scotia can't buy Cdn mutuial funds from Cdn company not registered in Nova Scotia. It's not a tax issue.

There is no 'hurry' to do this, other than the US broker wnting to get you off their books. As isaid, unless you make a purchase, you and the broker are not violating any regulations.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
reis
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Joined: Mon Dec 04, 2006 9:15 pm

Post by reis »

Thank you very much Nelson and Norbert for the information. If I understand correctly I could:

1) Transfer all my stocks to a Canadian broker like E*TRADE.
2) Leave my Vanguard account in the US, which is comprised of just mutual funds, but never make any new mutual fund purchases; only sells. (I guess I would also need to change my re-investing option to make sure I am not doing any implicit purchasing.)

Would this strategy be safe?
nelsona
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Post by nelsona »

1) is not a problem, 2) however, is upto Vanguard and would still require a US address, as it is likley their policy to view you as untouchable. (btw, reinvestment is probably OK in that you are not actively ordering them to reinvest; but this is one of the reasons Vanguard will want to shed you -- too many grey areas which can get THEM in trouble).
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Norbert Schlenker
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Post by Norbert Schlenker »

Nelson is right about Vanguard. They don't want a Canadian address on their books. Selling you a fund - even letting you reinvest if you want to be hyper-technical - is a violation of the Securities Act in your province, because Vanguard funds are not registered for sale anywhere in Canada.

Sell them. Bring the money to Canada. Invest as you wish. (If your Vanguard funds are index funds, there is a good chance you can replace them with Vanguard's equivalent ETFs, which you can own in Canada.) Taxes are probably not much of an issue on the sale of these funds. You're not resident in the US any more, so liability for capital gains lies solely with Canada. Since your cost base for Canadian tax purposes is reset when you came back to Canada, chances are the gains and taxes on them will be minimal.

If the funds never paid a dividend, you could almost get away with forgetting to inform Vanguard about your change of address. Set yourself up for electronic statements and you would be golden. Unfortunately, if they have to send you a 1099, they want a real address.

Regarding the stocks you want to transfer to Etrade Canada, prepare yourself for paperwork. It is actually possible to transfer stock from a US brokerage to a Canadian one electronically, because the underlying records for both are lodged at DTC in Hoboken (I think it's Hoboken). Just make sure all the i's are dotted and t's crossed at both ends. Expect motivated brokers: The Canadian broker will be happy to have the assets; the US broker will be happy to lose the account because of the regulatory issues.
reis
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Joined: Mon Dec 04, 2006 9:15 pm

Post by reis »

Thank again for all the great information you guys have so kindly given me. I'm not sure why you guys are being so gracious with this information, but it sure is appreciated.

After more research... It looks like according to IRC 877 if one of the following conditions is true of a Expat, or Long Term Resident (me):

(1) an average income tax liability of $127,000 for tax year 2005 (or higher amount for later years) for the 5 prior years (this sets the bar pretty low. Anyone leaving the tech sector in Silicon Valley would surely hit this?)
(2) a net worth of $2,000,000 on the date of expatriation

the individual will be treated as a US citzen and will be taxed on there world wide income for 10 years following the submission of a declaration of expatriation (Form 8854). Information from: http://www.irs.gov/businesses/small/int ... 45,00.html

From this I am gathering that selling my mutual funds to bring the assets into Canada will result in a taxable event. Does that sound right to you guys?
nelsona
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Post by nelsona »

Expat tax is a whole separate issue.

If you're keeping your gc, it's not an issue, you remain taxable in US on almost all your income.

There are many exceptions to the expat tax, including returning to your home country, so I wouldn't be too concerned about it.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Norbert Schlenker
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Post by Norbert Schlenker »

reis wrote:(1) an average income tax liability of $127,000 for tax year 2005 (or higher amount for later years) for the 5 prior years (this sets the bar pretty low. Anyone leaving the tech sector in Silicon Valley would surely hit this?)
I could be wrong about this, but I don't think there are that many Silicon Valley techies that had an average federal tax liability over $127,000 for the past 5 years. If that describes you, congratulations on making a cumulative $1.5-2m in the last few years. You must have saved some of it. Consider paying a professional for some good cross border advice re 877.
reis
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Joined: Mon Dec 04, 2006 9:15 pm

Post by reis »

Your right. I wish that was me. I read it as salary, not tax liability.
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