Basis – a blog about tax law

Canadian taxation of Vanguard ETF conversions

Someone recently asked me about the Canadian tax consequences of converting Vanguard’s US mutual fund shares into ETF shares — for example, VTSAX to VTI. It appears, subject to certain assumptions, that a Canadian resident may perform this type of conversion on a tax-deferred basis, relying on section 51 of the Income Tax Act.^[1]RSC 1985, c. 1 (5th Supp.), as amended (herein “ITA”). Analysis in support of this conclusion follows below.

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References
↑1	RSC 1985, c. 1 (5th Supp.), as amended (herein “ITA”).

US Foreign Tax Credit FAQ

Latest tax writing: the US Foreign Tax Credit FAQ.

If you liked this, you may also enjoy my 2021 blog post on the Canadian foreign tax credit.

Dual-status? Avoid TaxAct

TaxAct calculates tax incorrectly for dual-status individuals despite claiming to support them. I’ve sent TaxAct a letter describing the issue. Until they fix it, dual-status individuals with effectively connected income should stay away from TaxAct.

A Roth 401(k) Odyssey

Have I mentioned how proud I am to have helped the CRA clarify their Roth 401(k) guidance?

New talk: Cross Border Taxation

This week I gave a talk called “US/Canada Cross Border Taxation”.

This talk is an overview of US and Canadian international income tax law for individuals in cross-border situations, including:

Canadians in the US, or recently moved / considering moving to or from the US
Americans in Canada and tax consequences of US citizenship
transferring internationally with Google stock grants
cross-border investments and retirement savings (401(k), RRSP, etc)
structure and sources of tax law in Canada and the US
features of the US-Canada tax treaty
foreign asset reporting (T1135, FBAR, etc)

You can watch a video of the talk here, or look at the slides at bit.ly/cross-border-tax-slides.

An RRSP FAQ

Inspired by discussions with coworkers, I created an RRSP FAQ (Google Docs link).

The FAQ began life as an internal document, but most of it had broader applicability, so I thought I would share it with the world. (The public version excises or anonymizes details that were specific to my employer’s benefits.)

Citizenship-Based Taxation

Of the many perversities in US tax law, perhaps the most fundamental and notorious is its imposition of tax on the worldwide income of nonresident US citizens. Let’s look briefly at what this means, what the consequences are for US citizens living and working in Canada, and what basis exists in law for citizenship tax.

Canadian Foreign Tax Credit

In this foundational post, I’ll cover the basics—and some not-so-basic subtleties—of the Canadian foreign tax credit (FTC). I’ll focus mainly on its application to individuals (not corporations) with “non-business” income such as from foreign employment, pensions, and investments.

They do care!

In my last post on effectively connected 401(k) payments, I complained that there was no clear user-facing documentation from the IRS on the split between contributions (ECI) and plan earnings (non-ECI).

Effectively Complicated Income

I ended my post on 60(j) rollovers with a cliffhanger, by hinting that the rate of US tax on a nonresident alien’s IRA or 401(k) distribution might depend on the extent to which the income is “effectively connected with the conduct of a trade or business within the United States”—a term of art from IRC § 871 that I quoted without the elaboration it deserves.