US-Cad citizen vs Norbert's Gambit

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Akersar
Posts: 1
Joined: Tue Dec 01, 2020 11:13 pm

US-Cad citizen vs Norbert's Gambit

Post by Akersar »

Hello!
I am a dual (US-CAD) citizen living in Canada looking to invest (currently in a limbo due to all the financial confusion caused by the american tax regulations). However, most of my investments will be through the NYSE or other US stock exchanges thus I need to convert most of my CAD to USD. I am trying to figure out how to properly Norbert's Gambit as a dual citizen as I know there may be hefty financial consequences if you make a mistake (example: I am unable to buy DLR as it is an ETF which is regarded as a PFIC).

I am mainly looking for other US-CAD citizens who are in the same shoes to provide their insights and any concrete steps.

Thank you so much!
DrJFM
Posts: 10
Joined: Wed Jun 05, 2013 6:53 pm
Location: PEI

Re: US-Cad citizen vs Norbert's Gambit

Post by DrJFM »

My broker, TD Direct Investing, employs a system of two sub-accounts to facilitate trading in both $ US and $ CND. I have seen references to systems in this forum to other bank based brokerages that sound about the same. The Main account, say Acct # 12345 has a CND $ sub-account #12345-i and a US $ sub-account, #12345-j. US trades are carried out in US $, CND trades in $ CND. The US accounts can not hold US $ so all proceeds are swept into a money market type fund. No fees are charged to buy and sell in and out of this "US cash equivalent" vehicle. To buy a stock in US dollars, the necessary amounts are "sold" from the money market vehicle and used to purchase the stock in US$. TSX trades are simply executed in $ CND.

You many use Norbert's Gambit to move money from one sub-account and currency to the other. This may end up with an effectively better exchange rate than just "buying" US$ or CND$, it will have a commission on the trades(not money market movement, just stock trades) so best done on moderate amounts at a time to minimize currency exchange losses. You may end up with more random cash balances after and between trades than ideal with the two sub-accounts, one can just buy a US stock with Canadian dollars (and an exchange cost) and then transfer the stock to the US sub-account so minimizing the need for large US $ cash balance. Or use Norbert's Gambit to move the desired funds to US$.

At the end of the day, once set up and funded with both CND$ and US$, the account provides full on line access to trades, transfers etc. It (and the other similar accounts) is not as cumbersome as it sounds. The US $ manipulations are automatic and fee free. For Norbert's gambit, most big Canadian banks are traded on both TSX and NYSE. BMO, TD, BNS, CM and BCE and Enbridge provide Norbert's Gambit at fairly low volatility.

I avoid any Canadian Mutual Funds and any REITS etc, have used US traded ETF's (since US seems to be the pickiest tax collector). Your experience may vary. I (dual citizen) have been able to maintain (even with a Canadian mailing address and tax home) a US bank account with TD Bank and have a US IRA at TD Ameritrade but not sure what Schwab's purchase of TD Ameritrade may mean going forward.
peer
Posts: 14
Joined: Thu Apr 28, 2016 11:26 am

Re: US-Cad citizen vs Norbert's Gambit

Post by peer »

I just realized this evening that (as a US-expat) the multiple conversions I've done with Norbert's Gambit and DLR/DLR.U the last couple months are going to introduce me to PFIC land since DLR is a Toronto-listed ETF.

Ironic since the whole point of doing the conversion to USD was to invest in only US-listed ETFs.

I guess I'm screwed, at least for my 2021 taxes.
Numbersman61
Posts: 7
Joined: Wed Sep 09, 2020 1:02 pm

Re: US-Cad citizen vs Norbert's Gambit

Post by Numbersman61 »

Simple solution for Norbert’s Gambit - trade an inter listed stock such AS Royal Bank. Sell Royal Bank on NYSE and buy on TSX.
dualblues
Posts: 23
Joined: Tue Mar 16, 2021 1:50 am

Re: US-Cad citizen vs Norbert's Gambit

Post by dualblues »

Hi akersar,

Skip Norbert's Gambit and convert the currency directly on Forex. I use an Interactive Brokers account for this purpose. It allows you to get the actual rate without banks imposing a spread. The transaction costs were ridiculously low. Once converted, you can invest the money or transfer to your bank account.

Finally, IB is one of the few discount brokers that provides a hardware device for two-factor. This is much better security than most.

Cheers!
peer
Posts: 14
Joined: Thu Apr 28, 2016 11:26 am

Re: US-Cad citizen vs Norbert's Gambit

Post by peer »

Numbersman61 wrote:
> Simple solution for Norbert’s Gambit - trade an inter listed stock such AS
> Royal Bank. Sell Royal Bank on NYSE and buy on TSX.

Thanks, I was aware of that, but that adds equity risk on top of the currency risk. With my current broker it takes 4-5 days to complete NG. In retrospect, that might have been better.

As long as I don't do any more NG with DLR after April 30 (end of fiscal year for DLR), my 8621 filing in 2021 should be a one-time thing. After April 30, I think I'd have to file an amended 8621 for 2021 in 2022.

@dualblues- I was aware of IB too, but didn't want the quarterly RSP fees or the inactivity fees for both RSP and Margin accounts. I'm not an active trader.
Numbersman61
Posts: 7
Joined: Wed Sep 09, 2020 1:02 pm

Re: US-Cad citizen vs Norbert's Gambit

Post by Numbersman61 »

There is no equity risk if the sell is done immediately after the buy. The way it is done With TD is that as soon as the financial agent sees the purchase in your account, they will sell the stock short in the other currency account. On settlement date, they will cover the short position by journal entry.
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