Dear Sir,
I have a question that you could possibly answer. I am a Canadian
citizen working in the USA for the past 10 years on a TN Visa. I
have retirement mutual funds (tax deferred IRA) and a taxable
mutual fund account at a large brokerage. I am 38 and going to
return to Canada in the next 5 years or so and live and
eventually retire there. Because of the tax treaties I am going
to leave my retirement account in the USA till I can withdraw it
at age 59 1/2, then pay US and Canada taxes as needed. The
question is: when I leave the USA, should I just take the money
(and run) out of the taxable account (to be re-invested in
Canada) or leave it here and deal with the tax implications of
the USA and Canada (the amount will be under 500,000). I am also
considered a resident alien to the USA right now, should I severe
that link in view of the fact that I still will be holding the
retirement account and possibly the taxable account (I guess that
’s 2 questions).
Any help would be greatly appreciated since this is such a
confusing issue.
Thank you,
.
-------------------------------------------------------
david ingram replies:
If you had asked me the question three years ago and I said to
leave the money in the US, you would be furious now because the
American dollar has fallen 40% since then and your money would be
severely depleted. The best I can say is leave half behind and
bring half home with you. If half happens to be in the IRA and
the cash account is half, bring home the cash account.
I am one of those who thinks that the Canadian dollar will be
worth $1.10 US in the next year because the US deficit is just
too big. It is more than the total deficit of all the other
countries in the G-8 for instance. We forget that from 1952 to
1960, the Canadian dollar floated from $1.02 to 1.0614 US
dollars. and I remember one memorable time in 1960 when on a trip
to Minneapolis, I received $1.10 US for each Canadian dollar
although that was more a come-on for tourists than the official
rate.
--
The following comes from American Gary Scott's newsletter on the
value of the US dollar - there are five parts, this is just one
of them You can see the whole thing at:
www.garyscott.com
====================
Gary Scott's words!
My advisors all feel that the dollar could take a big dive now.
The press agrees. Yesterday’s Bloomberg article says:
“May 8 (Bloomberg) -- Li Yong, China's vice minister for finance,
said he had heard a `rumor’ that the U.S. dollar was headed for a
25 percent drop. If the gossip was true, the consequences would
be ‘shocking,’ he said.
“Li's comment, which he made at a discussion on global financial
imbalances last week at the annual meeting of the Asian
Development Bank in the Indian city of Hyderabad, was aimed
directly at fellow panelist Tim Adams, the U.S. Treasury
undersecretary of international affairs.
“The unspoken message was: ‘Don't try to talk the dollar down.’
And Adams knew better than to ask, ‘Well, what are you going to
do about it?’ The answer to that question has already begun
taking shape: Asia may be getting ready to fix its currencies to
a local anchor, dumping the region's unofficial dollar peg.
“Even as they continue to pile up U.S. debt in their foreign-
exchange reserves to keep their currencies stable against the
dollar, Asian nations, China among them, are preparing for a
scenario where the dollar does indeed collapse under the weight
of a record U.S. current account deficit.” You can read this
entire article at http://tinyurl.com/kbn7t
My portfolio agrees as well. Last month it rose 4% mainly due to
US dollar weakness.
Yesterday we began looking at factors that affect currencies to
see how the greenback might fare.
We began by looking at current account deficits and saw the
current accounts in dollars and projections of % of GNP from best
to worst.
Country Current Account Last 12 months
Projected 2006 Current Account
Billions
% of GNP
Switzerland +$50.2
+13.0%
Sweden +$21.8
+ 6.5%
Japan +$163.4
+ 3.7%
Denmark +$ 6.0
+ 2.7%
Canada +$ 25.2
+ 2.2%
Euro -$
- 0.3%
Britain -$
- 2.5%
Australia - $
- 5.5%
USA -$804.9
- 6.8%
This initial review suggests that the best major market
currencies to invest in now are the Swiss franc, Swedish kroner,
Japan yen, Danish kroner and Canadian dollar. However we decided
not to jump to conclusions based on just this data. Let’s look
more deeply.
Another factor to consider is how much of the current account
deficit (or surplus) is from the trade balance and how much from
investors.
Trade balances are difficult to shift in a short time.
Investments, however, can flow much more quickly.
For example, the US had a $798 billion trade deficit over the
past year. The current account deficit is $804 billion which
shows that though imports far surpass US exports, there is not a
huge outflow of investments from the US. So let’s compare Trade
and Current Account positions:
Country Trade Balance Last 12 Months
Current Account Last 12 months
Billions
Billions
Switzerland + $7.0
+$50.2
Sweden +$19.2
+$21.8
Japan +$86.5
+$163.4
Denmark +$ 8.7
+$ 6.0
Canada +$59.0
+$ 25.2
Euro
- $ 40.3
Britain -$121.5
-$ 57.4
Australia -$
-$ 42.1
USA -$798
- $804.
We can spot some interesting facts right away. Switzerland, for
example, has a small trade surplus of 7 billion, but huge current
account of 50.2 billion. This means that 43.2 billion dollars
were invested into Switzerland. This in Switzerland’s case is
probably caused by fear oriented investors shifting to what they
feel are safer Swiss franc accounts.
Watch out for this! The Swiss cannot let the franc appreciate
much past the euro. If this happens, the Swiss National Bank may
impose negative interest rates as they have done in the past
Japan is in a similar position. The Japanese have a great trade
balance and a huge investment inflow. This suggests that some of
yen appreciation has already taken place. Investors have already
flocked to the Nippon state.
One key to profiting from currency investments is to hold
currencies that have strong fundamentals but weak investor
interest. The profit comes when investors flood in!
So Japan’s yen still looks strong in this respect, but does not
have the potential of Sweden.
Sweden has a solid trade balance but not much investment inflow.
This is a sign of potential future currency strength. If
investors catch on to the fundamental strength of the kroner, it
could rise. The euro is in this position even more so.
Denmark and Canada may have even more potential as they have
great trade figures but suffer an investment outflow. I
especially like the Danish kroner and hold a fair chunk in my
portfolio. I am adding Canadian dollars to my portfolio for this
reason now.
Britain, on the other hand, has terrible trade figures but a huge
investment inflow. The investments are not enough to make up for
Britain’s excessive imports, but the inflow may be coming from
fear somewhat like the Swiss franc inflow. Much of the world
still views England as the motherland. When British oriented
investors don’t know what to do, they park their money in British
property or pounds sterling.
Finally, the US and Australia stand alone in a class of their
own, lousy trade figures and an investment outflow. No wonder
both these currencies have dropped and probably will drop more.
This second insight into the major currencies gives the Canadian
dollar, Swedish and Danish kroner the best look. We have
narrowed the field from five to three major currencies, seeing
reduced potential in Japanese yen and Swiss franc. However, there
is still much more to do. So stay tuned tomorrow when we look at
debt.
------------------------------------------------------------
David Ingram's US / Canada Services
US / Canada / Mexico tax, Immigration and working Visa
Specialists
US / Canada Real Estate Specialists
My Home office is at:
4466 Prospect Road
North Vancouver, BC, CANADA, V7N 3L7
Cell (604) 657-8451 -
(604) 980-0321 Fax (604) 980-0325
Calls welcomed from 10 AM to 10 PM 7 days a week Vancouver (LA)
time - (please do not fax or phone outside of those hours as
this is a home office)
email to taxman at centa.com
www.centa.com www.david-ingram.com
Disclaimer: This question has been answered without detailed
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