QUESTION:
I am a recent immigrant to Canada--a US Citizen who is now also a Canadian
Permanent Resident. I am trying to develop a personal financial strategy,
and have one specific question at this point. I have a large investment
account in the US with Merrill Lynch, consisting almost exclusively of US
stocks, bonds, mutual funds, etc. My understanding is that I will be taxed
by the US on the proceeds (dividends, interest, etc.) from that account, and
the foreign tax credit that Canada will give me for those taxes I pay to the
US will be very limited. What do I need to do to avoid that almost-double
taxation (other than renounce my US citizenship)? Is the issue that the
investments themselves are US investments, or that the Merrill Lynch account
is in the U.S? In other words, if I were to transfer those same investments
to be managed by a Canadian investment company, could I avoid that double
taxation?
Thanks in advance.
--------------------
david ingram replies:
As a US citizen living in Canada, the maximum tax you will pay to the US on
interest is 10% and on dividends or pensions or royalties is 15%.
Because you are a US citizen however, M-L will not withhold at the 15% or
10% level. When you calculate your US tax you limit the interest to 10% and
the dividends to 15% by filing Form 1116 and recharacterizing the income.
Canada will only allow the credit for the 10% or 15%. This is a common
problem and you can refile back three years and of course I would be glad to
look after it.
In one case, we got over $45,000 back and $10,000 or $15,000 for significant
accounts is not unusual.
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