Tax Implications of Dual Citizenship

I am a dual citizen (Canada/U.S.) and have lived in Canada for about thirty-five years. What are the tax implications if I buy U.S. based ETFs with USD and Canadian based ETFs with CAD?

As a U.S. citizen, you're required to file a return with the IRS each year and report your world-wide income, under the U.S. tax rules. In addition, recent U.S. rules require that you report your worldwide investment holding to the IRS annually.

As a Canadian resident, you are required to file a Canadian tax return each year and report your world-wide income under the Canadian rules.

The good news is that for any income that is taxed in both jurisdictions, tax treaties between the two countries allow for foreign tax credits to avoid double taxation.

With regard to Canadian ETFs – regardless of the currency used to purchase the funds, you must report any dividend income received converted to Canadian dollars on your Canadian return. You will get preferential tax treatment on those dividends. You must also report any capital gains (again in Canadian dollars). If you are trading in U.S. dollars, your gains on the Canadian return are affected by any change in the exchange rates at the time of purchase to the time of sale. Always report in Canadian dollars. The Bank of Canada has monthly and average exchange rates available.

Also be sure to report on new form T1135 the Foreign Income Verification report if the cost amounts are $100,000 or more.