U.S. citizens living in Canada and Canadians who own property in the U.S. can’t have standard investment portfolios. This was the message at this year’s CFA Wealth Management Conference, hosted by CFA Society Calgary.
“Typical investment planning does not function in this world,” says Bryant Andrus, vice president, Canada operations at KeatsConnelly, who spoke at the conference.
Here’s how to help.
1. Determine citizenship. Since these clients have a different set of financial needs, advisors have to ask additional questions, such as, “Where were your parents and grandparents born?” This helps determine whether the client is a U.S. citizen for tax purposes — something she may not even be aware of.
2. Have a qualified cross-border expert on your team. This person should understand both Canadian and U.S. tax law, including the Canada-U.S. Tax Treaty, and should know the Treaty does not eliminate double tax.
3. Determine property ownership. Clients who own U.S. real estate must note that a property’s title (whether it’s titled in the client’s own name, or through an entity) will have tax ramifications. These clients should also know what tax forms to file and when. Additionally, they need liability insurance that covers both sides of the border, Andrus says.
4. Know the rules. When selling a U.S. property, be aware of the Foreign Investment in Real Property Tax Act. There is a withholding tax (20% of the gross price) unless certain forms are filed before closing.
5. Discuss U.S. estate tax. If a client has less than US$5 million in worldwide assets then she shouldn’t have U.S. estate tax exposure, unless she’s a U.S. citizen or a green card holder. To avoid paying probate, Andrus says there are a variety of solutions “depending on what U.S. state [she is] in and who is inheriting the property.”
And if you’ve got an American client who wants to renounce her U.S. citizenship, then Andrus advises obtaining proper tax and legal advice because it’s a lengthy, complicated process.