Update March 29, 2023 …
On March 28, 2023 the Government of Canada officially announced that the Canadian “First Home Saving Account” will be available to Canadian residents as of April 1, 2023. As explained in this description of the “FHSA”, this will be of value to U.S. citizens who are resident in Canada. The circumstances surrounding the TFSA are similar to the FHSA. Here is a more complete discussion of US citizens residing in Canada and the use of the FHSA.
Introduction And Purpose
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) December 7, 2022
As the article referenced in the above tweet makes clear, a very small percentage of Canadians can expect their retirements to be funded by pensions. The message is that individuals have an obligation to themselves and to their families to engage in responsible financial and retirement planning. Governments have a clear, important and sustainable interest in assisting their residents to achieve and maintain financial stability. The tax laws in every country have provisions in their tax codes to both incentivize and facilitate this planning. They facilitate planning planning vehicles through provisions in their tax codes. Almost all of these planning vehicles are based on “before tax” advantaged vehicles (RRSP or Conventional IRA) or “after tax” vehicles (TFSA or ROTH IRA) which allow for tax free growth. Canada is home to many people who are dual Canada/US citizens. Canadian residents who are also U.S. citizens are subject to the U.S. tax code. This means that they are required to comply with the tax codes of both Canada and the United States (two of the most complex tax regimes in the world). But, what happens when the financial planning provisions in Canada’s tax law are not recognized in the tax code of the United States? What Canada giveth, the U.S. (possibly) taxeth.
The purpose of this post is to take a “deeper dive” into the mechanics financial planning and investing for U.S. citizens who reside in Canada. Most U.S. citizens feel completely disabled by U.S. tax laws. I don’t believe that this is necessarily true in all cases. This is intended to be one of a series of posts to address the specific issue of:
“Retirement And Financial Planning For U.S. Citizens Living Outside The United States”
If you have an idea for a topic send me an email. I encourage you to subscribe to this blog.
U.S. Citizens In Canada And The TFSA
I am frequently asked by Canadian residents who are US citizens whether they should open a TFSA (“Tax Free Savings Account”) in Canada. The purpose of this post is to discuss this very issue. As usual there is no “one size fits all answer” that is correct for everybody. In order to analyze this question I am joined by Oliver Wagner of “1040 Abroad” who has provided his thoughts, experience, commentary and some sample tax US tax returns which illustrate the various principles.