Young Adult, Dual Tax Filing

[DBinROC]

My dual citizen daughter went to university in Canada and elected to remain a resident there. She’s filed taxes in Canada for five years but not in the US. I know, I know, she’ll start US filing in 2023. (I didn’t think it was necessary given that her CDN taxes were higher than the foreign tax credit + standard deduction which showed no US taxes owed) .

But my real issue is how to help her efficiently invest for her long term goals. Assuming she remains in Canada for 10+ years, or even life. It’s premature to renounce US citizenship.

If IRS taxes her TFSA, and CRA taxes her growth in the Roth IRA, are these tax deferred vehicles essentially moot? Leaving just an RRSP as her only tax sheltered opportunity while living in Canada?

[nelsona]

There is little value in renunciation, so don't even think about that at her stage in life. Unfortunately, it is usually not as simple as "starting now" to file her 1040's; she likely would have to catch up before doing anything else. It is almost impossible for her to be taxable in US year by year.

Her Roth is NOT taxable in Canada, as long as it is not in US. Hopefully she is not continuing to fund the Roth, as this is a no no. Just a couple of rules to follow, like declaring her Roth.

Her house would be a good investment, as long as she sells before it gains $3-400K and becomes taxable in US.

[ND]

RE:I didn’t think it was necessary given that her CDN taxes were higher than the foreign tax credit + standard deduction which showed no US taxes owed

Had you said ONLY I didn’t think it was necessary given that her standard deduction was higher than income, OK, otherwise she needs to join the other million Americans in Canada reporting to IRS how they arrived at Zero.

Another common mistake is that university students are granted scholarships and people think the entire amount is exempt and not reportable on 1040. If part of it isn't for tuition and books, that part is taxable.

Also, if she files her own 2020 and 2021 1040 she can receive EIP 1,2 & 3 and this often yields at her age a better result than Cdn resident parents claiming this. If, however, parents residency is in USA and they too are 1040 filers, this analysis likely changes with it being most beneficial for parents to claim.

[DBinROC]

Yes, we'll reconcile with Uncle Sam separately.

But my main question is what investments can she make, in which accounts, for the best tax deferred growth? The TFSA growth is not recognized by IRS as deferred income. Which basically leaves her with contributing to a company RPP, and her RRSP. Toronto housing prices are well beyond her reach.

Best council I can give her is to fund the RPP to get the company match, and in the RRSP buy individual stocks, ETF's and now GIC's and avoid the IRS paperwork.

The USA based RothIRA account has been inactive for almost 10 years, but has grown from initial deposits.

Anything else I'm missing?

THanks

[nelsona]

She should "register" her Rpth with CRA, if she didn't do it already when she moved to canada.
https://www.canada.ca/en/revenue-agency ... h-ira.html