Canadian Resident/US Citizen with US Brokerage Account

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Canadabound
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Joined: Mon Feb 28, 2011 4:22 pm

Canadian Resident/US Citizen with US Brokerage Account

Post by Canadabound »

Hello:

My friend is a US citizen recently moved to Canada. She likes her US brokerage firm relationship (taxable cash account), and has no intention of moving it to a Canadian broker licensed in Ontario (where she lives). Her US broker is not licensed in Ontario, and she is using a US address for her statements.

She understands that the brokerage firm is violating securities laws by not being licensed in her jurisdiction. Short of anyone here telling her to move her account to Canada (she knows that already), what exactly can/could happen to her if she chooses not to (she doesn't care if the US brokerage firm could get in to trouble.. she only cares about trouble for her)?

Can the IRS give her trouble (she owns no PFICs)? Would the CRA care, as she is paying taxes in Canada on gain losses/interest and dividends? Can the securities regulators (either Ontario or US regulators) do anything to her (we know that they can sanction the brokerage firms)?

Thank you.
nelsona
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Post by nelsona »

Wow. I'd hate to see what she does to people/firms she DOESN'T like.

The only negaive is if they find out, they would likely sell off her assets immediately, which she may or may not like the consequences of. I presume they could go after her for costs incurred by any OSC fines they might impose.

But from tax point of view neither CRA nor IRS care where the investments are held.
The account would be considered a foreign account by CRA, and not IRS (no fbar).

Just to be clear, the fact that the investments are held in a US brokerage, doesn't change the fact that for capital gains purposes, they are considered Cdn-sourced, not US-sourced. Any double tax relief would have to come on the US return, using form 1116.

And for CDn cap gains purposes, all the assets are deemed to have been bought the day she moved to Canada at that day's value. so there will be different cost bases for IRS and CRA.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Canadabound
Posts: 21
Joined: Mon Feb 28, 2011 4:22 pm

Post by Canadabound »

Thank you for your quick response. A couple follow-up questions, if I may.

1. Have you ever heard of the OSC sanctioning (or attempting to sanction) a US brokerage firm under such circumstances? Morever, the US firm then coming back against the client?

2. Would she avoid the Form 1116 if she held all her accounts with a Canadian broker?

3. If she did not declare the assets to be sold (and rebought) the day she moved to Canada (mid-2012), and the assets are higher in value than her original book value, is there a chance that the IRS could come back on her for capital gains taxes that have not been paid? She moved in 2012, so her deemed disposition would have been last year, and the US taxes would be due, basically now. So, is she running the risk of running up penalties and interest with the IRS, given that she has not yet declared the gains upon US exit? Is that a reasonable interpretation?
nelsona
Posts: 18314
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

The OSC has sanctioned even the big firms for doing this, back in early 2000's.

Whether they went back against the client depends on whether they or the client acted in good faith. Your friend is obviously not.

I would 't bother arguing with her, she sounds unresponsive.

2. No. As I said, her gains are considered Cdn-sourced anyweys. All she would avoid is fbar on that US account if she kept it there.

3. I think you are missing the point. CRA, not IRS, views all newcomers to canada as having sold and bought their entire portfolio just before arriving, no exceptions, other than Cdn real estate. IRS doesn't have such rules. She hasn't sold anything, so is not liable for any cap gains/losses in IRS eyes. Nor in Canada by the way, since she been deemed to acquire the items on the day she moved. They simply have differnt cost bases in each countries tax system.
Ttansferring (or not) her assets to a Cdn brokerage doesn't change this. Only selling does.

These are questions for your friend to be asking, not you. She doesn't listen to you.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
nelsona
Posts: 18314
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

I recommend that your friend look at bylo.org where the legalities of Cdns havinga a US brokerage (non-sheltered) is discussed.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Canadabound
Posts: 21
Joined: Mon Feb 28, 2011 4:22 pm

Post by Canadabound »

thanks.
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