leaving Canada, set up brokerage account elsewhere?

[dawnwil]

I am working out details for a move to the DR and am not sure what to do about a brokerage account. At the moment I manage my account online through a firm in Canada.

All stock holdings are considered 'sold' on the day of departure, and taxes are paid on capital gains to that day, after which the gains are considered made to a non-resident.

But, Canada has broad ways of determining residency-- any 'ties' to Canada may be used to call someone a resident even if residency is obtained elsewhere. It's possible the brokerage account, though small, would be considered so... the rule can be so widely interpreted, who knows? It's not like I'm a big fish getting away-- more like a minnow, but I don't like the idea of keeping a brokerage account active if it might become an issue in future.

Well, that's the history to my question.

So, how might I set up a brokerage account elsewhere, one I can continue to use from here? Are there intl brokerage houses that allow one to trade on different exchanges from anywhere? I know nothing about this.

I understand my obligations will be the same in Canada-- if I make any capital gains before the official Day of Departure, I must declare those gains, worldwide. It feels too messy to buy and sell those stocks twice, so I'd rather not. Still, I don't want to lose the buy opportunity.

Thanks for any thoughts, D

 

[Paul Thate]

all the major canadian banks have subs in the bahamas
they will be pleased to help you out.
trading online etc is all no problem.

 

[dawnwil]

thanks Paul!

This is heartening.

I will call to see if it's possible to have my account transferred, with no need to buy/sell between countries.

It's funny how so many details drive you crazy, and then you realize there was no need...

Of course, that's another grand thing about these forums: peace of mind.

I will follow up after calling, in case someone else is researching this topic one day. D

 

[dawnwil]

ok, $250,000 minimum

... to open a brokerage account in the Bahamas. This was the figure quoted by RBC regional office in Nassau. I'm a minnow, not an albacore tuna, so that option ... isn't.

Other info: they do not transfer accounts; there is no connection between Canadian accounts and those held in the Bahamas. Obviously, they will not open accounts for Can residents, so proof of residency elsewhere is required.

The brokerage acct may be maintained in Canada by a non-resident. To do so, with online access:

1. margin acct converted to cash account only
2. acct # would change on 'day of departure' to be identified as a non-resident acct. This would initiate withholding tax on proceeds from stock sales, interest, and dividends. The amount withheld would vary depending upon source.
3. Mutual fund investment is disallowed.

I checked with TD Waterhouse--current online brokerage acct--because it has offices internationally. A Canadian non-resident may open an account in the US with TD Waterhouse, but would be required to fill out a W8 form-- and the IRS would withhold up to 30% from proceeds, depending on source.

During the conversation the above information seemed clearly stated, but did I comprehend correctly-- that the IRS does indeed withhold tax from foreign investors?

I have found a reliable offshore brokerage company recommended by Lloyds, but online trading is not an option. Trades are conducted the old-fashioned way: telephone a broker, and pay the accompanying higher fees for trades.

If anyone is wondering why I'm wondering ... my research shows that gains on financial investments held internationally are exempt from DR taxation for the first 3 years of residency. I would much rather avoid the hassle of unnecessary paperwork. The withholding taxes are a mechanism of intl tax treaties; it is assumed that taxes withheld in Canada will be claimed as credits in the new country of residence ... given that most countries now tax on worldwide income. Meaning it should all work out in the end ... other than the hassle of the ever-present bureacratic paper trail. yuk.

In Canada, the taxation laws are the same for residents and non-residents, aside from non-refundable tax credits for which non-residents are not eligible. So, capital gains are taxed at the same rate. It is possible to elect to continue submitting Can tax returns, and claim back amounts withheld as one would do if still a resident.

More on Canadian departure tax:

btw-- in Canada, the definition of 'resident' is now very broad, and it is recommended that ties are cut precisely if one wishes to avoid an interpretation that one is still considered a resident for tax purposes. Apparently, even residency in another jurisdiction is not 'proof' of non-residency in Canada. Of course... I suppose this is only an issue if one is leaving assets in Canada. But it is getting ridiculous, in that a departure tax is levied on all personal property/assets with value over $1000 ... including car, etc. So, any stocks owned on the date of departure are said to have been sold on that day, and capital gains are due. The Canadian govt will accept a bond on property/assets still held in Canada, and forego collection of tax on capital gains until the asset is sold. The primary residence, because it is not taxable by law upon sale, is excluded from this departure tax.

D

 

[ricktoronto]

OK - No "Departure Tax", really.....

But it is getting ridiculous, in that a departure tax is levied on all personal property/assets with value over $1000 ... including car, etc. So, any stocks owned on the date of departure are said to have been sold on that day, and capital gains are due. The Canadian govt will accept a bond on property/assets still held in Canada, and forego collection of tax on capital gains until the asset is sold. The primary residence, because it is not taxable by law upon sale, is excluded from this departure tax.

D

There is no departure tax of all assets.

There is deemed disposition of capital assets at the time you become a non-resident since you would not willingly pay 1 cent of tax if you left and could get away with it - they are not dunderheads at Revenue Canada.

As for personal property you don't pay tax on everything you sell - you pay tax on the profit on anything you sell and since you probably will have a profit of zero you pay zero. (How many cars and sofas sell at a profit and who is around to catch the transaction anyway?)

After the deemed disposition of investments you can just as eaily leave the brokerage account where it is since any sale at a capital gain after you leave is not taxable in Canada (and of course the broker even now doesn't withhold tax on stock sales).

As to taxable assets: If you sold a painting as a resident here now for $50,000 for which you paid $10,000 you owe tax on the $40,000 , so why would deemed disposition be different?

But cars, furniture etc.? They are not seeking tax on that any more than from a rummage sale or selling in a classified ad.

As for a brokerage account, did you e-mail or call the Scotiabank or Citibank in Santo Domingo? (Assuming you'd like to deal with a North American entity)

If you are moving to the DR perhaps they can tell you what may be options. Otherwise there are other offshore banks and brokers in other than Bahamas such as Cayman, etc., who may handle smaller accounts.

 

[dawnwil]

I would be insanely happy if it were so!

Rick, believe it or not, when I began the process of researching this aspect, things were a lot clearer. If I were getting simple, straightforward answers from my broker and Revenue Canada, I would dance naked in the streets and leave the damn account where it is already.

Not to discredit anything you've said-- from other advice you've posted, you make sense and know whereof you speak. Of course your personal property examples are entirely logical! I couldn't believe the nitpicking I discovered in the course of research... for example, why would clothing even be mentioned? One would assume it's impossible for one's wardrobe to increase in value.. yet clothing is included, if valued at more than $1000. Oh yeah... there is that one Princess Di gown I bought at Sotheby's for a real steal. It's that scarlet silk file in the portfolio. The dress itself is sealed in an environmentally controlled closet with concealed camera... sure is a beautiful dress ...

I would much prefer to keep the brokerage account where it is... I love that online access. My initial concern was that the account itself might be used to argue residency... given that one's driver's license, a bank account, or even a passport, might be considered proof of 'social ties to Canada' should the powers that be decide to interpret those items as so. I had visited some websites and got the info on share proceeds as you state it, but I followed up this week with several phone calls, to which I received inconsistent responses. Not surprising, I guess.

Thanks so much for responding!

It gives me hope that I need not move the account after all. I have decided to set up a meeting with a tax specialist before acting one way or the other.

Also, a matter of curiosity... why would a Canadian brokerage account held in the US be subject to withholding tax by the IRS?

D

 

[ricktoronto]

Get some (paid for) advice

If you wanted to learn golf or wanted to be a pilot, you'd pay for lessons. This is a VERY complex subject - I strongly recommend two consultations - one a lawyer that specializes in non-resident matters (as to how much you have to do to lose residency here) and a Chartered Accountant that specializes in non-residents/offshore finances.

There are lots in Toronto that can take maybe an hour each and give you the straight dope, on what you have to get rid of (and I agree nearly EVERYTHING that is evidence of living here - the house, the licenses, the club memberships) and issues around deemed disposition and whether or not you can then leave the broker accounts in situ.

It is quite well known that for tax matters one of the worst sources is Revenue Canada itself - call with a fairly complex question three times you may get three answers. A CA with a reputation and insurance at risk is simply better informed. Actually a big law office should be able to have a lawyer who can advise on both sides of the issue.

As for selling clothes, rules or not, really, that is impossible to track and you could sell everything of an import before you apply for nonresident status so there is nothing to dispose of n'est ce pas?

BTW, the passport is NOT proof of residence, you have a right to that under the Charter so they can hardly say that is part of it - dual citizenship has been a right here for a long time.

 

[Jigglebelly]

I'm a minnow, not an albacore tuna,

If you are indeed a minnow, then it is likely to be less expensive to simply liquidate the account and be done with it. It makes little sense to spend more money on lawyers than you would pay in taxes.

Now if you are a trout, where the tax is significant but not large enough to justify paying for a full-blown international tax plan, then try this on for size:

1.)Rather than liquidate the account, outright, withdraw the actual securities in the form of stock certificates, bonds, etc.

2.)Close out the cash portion of your account and pay the taxes due.

3.)Find a brokerage or private banking house, outside Canada, that meets your needs.

4.)Deposit the securities, themselves, into your new account.

Whatever you do, stay away from US firms at all hazards. Not so much for the taxes, because US taxes are likely to be lower. The problem is that, being a Canadian citizen and resident of the DR, your account may draw too much unwanted attention. In the US, we have a nice little custom called civil asset forfiture. Your account can be seized, without any recourse, so long as someone calls it drug or terrorist money. You do not even have to be so much as accused of a crime for this to happen to you.

Good Luck.

 

[dawnwil]

I am a trout

Why am I thinking of a Beatles song?

Rick-- you are correct, without a doubt. Trying to second guess the CCRA is a fool's game... spending a couple hundred dollars is worth the peace of mind. I want to talk to someone because now I'm really curious as to what's what.

My instincts tell me to just deal with less convenience and make the divorce final... from Canada, that is.

Jigglebelly, I hear you. I'm of zero interest to govt because I'm not trying to leave with all kinds of wealth, but in general, the narrowing of personal freedoms troubles my rebel sense... and I only see those freedoms narrowing moreso in future. Which is why I'm leaving now, while there's still a place like the DR in this world. It's been on my mind for at least 10 years. For many, the loss of freedoms is not an issue because practical reality-- raising a family, earning a living, and so on--means there's never a time to truly question one's freedom to come and go. It's a tradeoff, because a country like Canada offers a great deal in exchange. I see Canada as following the US lead... making it ever more difficult for its citizens to leave, that is. Not overtly, but in subtle ways. One discovers that the 'system' is quite effective in creating deterrents. People may look and dream, but most quickly give up thoughts of a freer life because there are too many obstacles. Those obstacles didn't appear by accident.

The joke is that those with all kinds of wealth got out years and years ago... 'offshore' before Joe Public even knew the meaning of the word. And so it goes...

If I didn't live in a rather bohemian way... not overly concerned about security, it would be extraordinarily difficult to make this move. But this is my LIFE, man! I've got to do it. I'm down to 10 boxes now... but to cut the 'social ties' that bind with the broad interpretations attached to Canadian residency laws ... well, they are making it difficult, and purposely so. One depends upon a safe harbour for money. No matter where you live, you need money and you need a place to keep that money. You need a way to access it. And so on. You have to dig to discover how to make your own system work as soon as you're out from under a country whereby those decisions are all made for you.

Hey, I really am a minnow . But a wild one at least, not farm raised. I'm fussing a great deal over the brokerage acct because I can't be sure that the 'rules' won't change whenever it suits the govt to change them. Rather... I can be sure the rules will change whenever it suits the govt to change them. I don't want to give up the ease of use, ie. online access, as I have it now, but even more I don't want to get tangled up in the system. I am in the process of doing as you suggested... have liquidated just about everything. But it would be nice to at least have the option to make an investment when a bargain comes along.

I believe I will go the intl broker route, and make the divorce final. hee.

thanks for your thoughts. D

 

[ricktoronto]

Not that easy

I

1.)Rather than liquidate the account, outright, withdraw the actual securities in the form of stock certificates, bonds, etc.

Almost all transactions take place using Multinet electronic clearing and for the most part there are not paper stock certificates here anymore and for mutual funds there never were. Even some government bonds are only electronic (example the new CSB's are not paper anymore)

Also keep in mind this withdrawal is reported to Revenue Canada as if it were a sale, and while it may not be a problem now, when you come back it could be a big one.

And frankly if you are going to evade tax ( criminal act) just sell the stock and don't pay the tax - there is no withholding on sale proceeds here - not a dime. Only on income and only for non-residents.

Bad advice I must say, dawnwil, you don't want to break the law do you?

 

[dawnwil]

No. The game will be played fair and square.

More sporting and much more satisfaction.

I'm no lover of taxes, but I ended a marriage years ago because my ex had that very idea. I did creative work, he took care of business. He didn't pay taxes. I was quite young and discovered the truth purely by accident. Live and learn. He declared bankruptcy, and never did pay his share. Loser mentality. btw ... I filed all the divorce paperwork myself... cost $99, and lawyers nowhere in the picture... it works if you're prepared to be fair... or even bend a little. Like ... he loved toys and wanted the cool camera, even though I used it for my work. Big deal. We split home, business, everything, but kept our sanity.

There are two ways to leave a country... sneak out the back door or say one's goodbyes politely and formally. I have a small company that will remain a citizen of Canada... an annual commission ongoing for the time being... small enough that there will be minimal tax, but I will continue to file Can tax returns until the commission ends, no set time. Which means the first option is out of the question. But I couldn't imagine banishing myself permanently from friends and family to hide from the govt. Like I said, loser mentality.

Rick... the idea of holding an actual certificate has some merit... because then a buy could be made at the most opportune time, and the certificate simply sent to an intl broker, instead of timing it precisely to sell here and buying again elsewhere. I assume that would be the case anyway. I purchased a certificate once before-- Christmas gift for a friend. I know it wouldn't change the need to report the disposition and capital gains on the official 'day of departure'.

Regardless, the possibility of actually losing the physical document bothers me.

This is really only an issue because a family member chooses stocks for himself and a few others, a value investor and a whiz at it. Given the pathetic state of interest rates, it's a nice option. I don't want to lose this vehicle for investment simply because I'm leaving the country. Especially the Canadian stocks have provided good opportunities because most never got near the outrageous valuations of the US stock market. Some of those companies work best for small investors because smaller floats/less liquidity isn't a problem when buying/selling smaller lots.

So there's the rest of the story.

 

[Jigglebelly]

How Odd

I know it wouldn't change the need to report the disposition and capital gains on the official 'day of departure'.

Now you have me curious! I have never heard of incurring capital gains when you do not actually sell something. Many countries will make you pay tax on the appreciation since purchase, but I had no idea that Canada will make you sell the securities and cause you to buy them again someplace else. It appears that I am badly informed about the Canadian financial laws.

Here in the US, no capital gains are due until the security is sold. There are situations where the appreciation is taxed, but at the ordinary income rate, not the capital gains rate.

For several years, I have toyed with the idea of investing in the Canadian market. I had been told that the rules are much the same as the US. I am lucky to find this out now. Thanks Rick! I imagine that many a poor sod, especially a cross-border investor, gets whipsawed by having to pay capital gains twice for the same stock.

 

[dawnwil]

your assumption was correct, jigglebelly

The disposition works the way you thought-- you do not have to sell, rather account for the gains as if you had sold. This is what Rick meant as well.

The first reason it's an issue-- I'm making it an issue now, instead of saying 'if only' later-- is because I want to be certain I have satisfied the govt with respect to non-resident status. The govt could choose to treat various connections to Canada as 'proof' of residential ties.

They do not automatically recognize residency in another country as proof of non-residency in Canada. In full context, I consider it a rather sweeping power, broadly defined; I dislike sweeping powers in principle and only see them becoming moreso in future ... if one considers, for example, the actions in the US in the name of the Patriot Act. There are good reasons for the changes, but also questionable ones-- at least, I question them, and believe everyone ought to be concerned about the deterioration of personal liberties. Who knows how Canada will be pressured by the US in future ... in the name of self defence, the US is extending its reach far afield and making demands of many countries ... pressure is applied subtly (well, not so subtly!) by way of its economic power; Canada has received minor slaps on the wrist for displeasing the US administration... though much more is implied by that 'displeasure'. Ours is the most obvious country for enforcement of greater constraints if the US wills it, given the sharing of our huge borders.

So the second reason is that I don't trust the idea of leaving future capital gains in Canada, because if the rules change, I may not free to buy and sell at my discretion without incurring a tax liability. I'd rather call the shots--at least for the 3 year period before DR residency laws apply to world wide investment income. You know ... I suppose I've argued myself out of the idea of leaving an account here. Laws and rules aside, it really doesn't make sense to do so, given my personal misgivings.

Enough of all that! I appreciate the discussion, so thanks very much... maybe it will provide some insights for others on aspects they might not have considered.

... And, speaking of odd ... if a Canadian moves to the US, in Canada the disposition of assets is said to occur on the day of departure... so tax is paid on capital gains to that day.

BUT, on the US side... capital gains are paid from day of purchase, which is a case of double taxation. My understanding of this is more than sketchy; I discovered it while researching the Canadian aspect. If you do a search on 'Canadian departure tax' ... you'll find several sources that comment on this issue with respect to Canadians moving to the US.

As Rick noted, it's complex, and worth paying for professional advice instead of acting on hearsay. I have decided to close the Can brokerage account for reasons noted above, but will seek advice to be sure I've met all non-residency requirements.

Thanks again for discussion!

 

[ricktoronto]

Not Taxed Twice

Now you have me curious! I have never heard of incurring capital gains when you do not actually sell something. Many countries will make you pay tax on the appreciation since purchase, but I had no idea that Canada will make you sell the securities and cause you to buy them again someplace else. It appears that I am badly informed about the Canadian financial laws.

I don't think you understand. You can , upon leaving (becoming a non-resident) , do either of 2 things:

Sell your holdings and pay the tax (you pay tax on 1/2 the capital gain, at your normal tax rates which vary as they increase on higher amounts of income).

Declare a "deemed disposition" in which you "pretend" you sold your holdings and pay the tax on the gain at the same rate as above, BUT you KEEP the stock and adjust the adjusted cost base ( ACB) to the value at the time of the "sale".

So if you had 1000 shares of ABC at $20 which cost you $10, you could sell for $20,000, have a gain of $10,000 and add 1/2 of that, or $5000, to your tax return.

Or you could do a deemed dispostion, pay the tax on the $5000 "gain" BUT you now carry the stock at $20 a share as the "cost" (ACB) so if you then ACTUALLY sold it at $20 there is no gain, since the ACB/cost is $20. And then you can leave it where it is and as a non-resident you would not pay tax if, say, it went up to $30 a share in the future.

Taking it out physically in certificates (which actually you can't do much any more) - to Revenue Canada you are
disposing of the shares since obviously the idea is to put them offshore and then sell without paying tax on the profit you've already made ( the $20 minus $10 difference) .

So if you did that you'd still have a deemed disposition but once again the ACB would be up to $20 a share again.

 

[Jigglebelly]

sorry for being a dunce

Now I understand. We have the same thing down here in inheritance and gift cases. We just don't call it a distribution or call the profit a capital gain. We do use ACB. That put me on the right page.

Since the US is doing away with the estate tax, I'm willing to bet, that the US will adopt a variation of the Canadian way to recapture some of the lost revenue.

At present, the US does not take the tax upfront. With world wide taxation it just is not necessary. Instead they make you declare all cash and negotiable instruments over $10k in value on the way out. No biggie if you have a round trip ticket to Montreal. The Caymen Islands? -- that's another story.