{"id":3783,"date":"2014-04-03T09:55:56","date_gmt":"2014-04-03T14:55:56","guid":{"rendered":"http:\/\/www.cusjc.ca\/ottawainsight\/?p=3783"},"modified":"2017-11-19T20:24:22","modified_gmt":"2017-11-20T01:24:22","slug":"investing-abroad-how-foreigners-should-invest-in-canada","status":"publish","type":"post","link":"https:\/\/www.cusjc.ca\/ottawainsight\/?p=3783","title":{"rendered":"Investing abroad: How foreigners should invest in Canada"},"content":{"rendered":"

\"FATCA<\/a>Uncle Sam will start peering into my bank account next year.<\/p>\n

I\u2019m not alone – around a million people in Canada will also be affected by the recent approval of the Foreign Account Tax Compliance Act (FATCA), which will require Canadian banks to collect financial information on their American clients and send it to the CRA. This information will then be forwarded to the U.S. Internal Revenue Service (IRS) in 2015.<\/p>\n

Information on anyone considered a \u201cU.S. person\u201d will be shared between the countries. This group includes dual citizens, Americans living in Canada, green card holders, and anyone with an American parent.<\/p>\n

As a dual citizen living in Canada, what effect could FATCA have on my personal finance plans? The answer is complicated.<\/p>\n

FATCA doesn\u2019t change existing laws that require any member of the affected group to file U.S. tax, said Dean Smith, a partner at Toronto-based accounting firm Cadesky and Associates. However, FATCA will make it easier for the U.S. government to find people in Canada who are avoiding American tax responsibilities, Smith said.<\/p>\n

This group should file taxes immediately to avoid steep fines and punishments, he said.<\/p>\n

\u201cCome in before they catch you,\u201d he said.<\/p>\n

Filing taxes in both the U.S. and Canada doesn\u2019t mean young adults will owe money to both countries. Most people don\u2019t end up paying taxes to the U.S. government because of Canada\u2019s high tax rate and America\u2019s foreign tax credit, said Shawn Roussy, U.S. tax services manager at Logan Katz, an accounting firm in Ottawa, Ont.<\/p>\n

Under this system, the amount that a person pays to their country of residence is used to offset the taxes ordinarily owed to the U.S. For example, if I live in Ontario and earn $40,000 a year, I\u2019d pay 20 per cent income tax in Canada. In the U.S. this income would be taxed at 15 per cent. After I\u2019ve filed taxes in Canada, the 20 per cent that was already taken off would cancel out the 15 per cent owed to the U.S.<\/p>\n

While FATCA may never affect my income tax, experts say it should change my investment strategy.<\/p>\n

Although FATCA relieves Canadian banks from sharing information on registered retirement savings plans, tax-free savings accounts, registered retirement income funds and registered education savings plans, individual taxpayers still need to report these to the U.S. government, Smith said.<\/p>\n

The complicated reporting process isn\u2019t worth it for most of these accounts, he said.<\/p>\n

\u201cUntil the IRS simplifies reporting, I wouldn\u2019t have any TFSAs, RESPs or RDSPs because those are considered foreign trusts for U.S. purposes,\u201d Smith said. \u201cRRSPs are fine because they\u2019re covered under the tax treaty.\u201d<\/p>\n

Young investors who file U.S. taxes should also shy away from mutual funds, Roussy said.<\/p>\n

\u201cI would recommend everything but mutual funds,\u201d he said. \u201cIn the U.S., they may treat unit holders of a mutual fund as a passive foreign investment, and there\u2019s extra compliance and there may be extra tax.\u201d<\/p>\n

Smith added that he also wouldn\u2019t advise dual citizens to invest in exchange traded funds because the \u201ccompliance burden is just a nightmare,\u201d he said.<\/p>\n

He instead recommends that young adults put their money in Canadian stocks and bonds because of the preferential tax status on dividends.<\/p>\n

When it comes to my own investment strategy, Roussy recommends that if I decide to renounce citizenship over filing taxes and changing my investment strategy, I should wait a few years.<\/p>\n

\u201cIf you want to be a U.S. citizen, it\u2019s the cost of preparing a tax return,\u201d he said. \u201cKeep your citizenship for 15 for 20 years to know for sure that you\u2019re not returning to the U.S.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"

Uncle Sam will start peering into my bank account next year. I\u2019m not alone – around a million people in<\/p>\n","protected":false},"author":78,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[300],"tags":[],"class_list":["post-3783","post","type-post","status-publish","format-standard","hentry","category-personal-finance-2014"],"_links":{"self":[{"href":"https:\/\/www.cusjc.ca\/ottawainsight\/index.php?rest_route=\/wp\/v2\/posts\/3783","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.cusjc.ca\/ottawainsight\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.cusjc.ca\/ottawainsight\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.cusjc.ca\/ottawainsight\/index.php?rest_route=\/wp\/v2\/users\/78"}],"replies":[{"embeddable":true,"href":"https:\/\/www.cusjc.ca\/ottawainsight\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=3783"}],"version-history":[{"count":5,"href":"https:\/\/www.cusjc.ca\/ottawainsight\/index.php?rest_route=\/wp\/v2\/posts\/3783\/revisions"}],"predecessor-version":[{"id":4525,"href":"https:\/\/www.cusjc.ca\/ottawainsight\/index.php?rest_route=\/wp\/v2\/posts\/3783\/revisions\/4525"}],"wp:attachment":[{"href":"https:\/\/www.cusjc.ca\/ottawainsight\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=3783"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.cusjc.ca\/ottawainsight\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=3783"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.cusjc.ca\/ottawainsight\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=3783"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}