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I am a US investment advisor with a client who's two sisters are Canadian citizens and reside in Canada. The two sisters would also like to utilize my investment services and invest in our stock, bonds, mutual funds, etc. portfolios. They asked me what the tax consequences might be. Is the answer similar to your explanation in your video about Canadians owning real estate in Florida? They simply will file a U.S tax return and then take a Foreign Tax Credit against their Canadian return for any U.S. taxes paid? Thanks for your help!
Your clients should avoid investing in Canadian mutual funds as they could be double-taxed because of the way the IRS treats foreign mutual funds. They should limit their investment to shares of Canadian companies and bonds. Furthermore, your clients will not have to file a Canadian tax return to report capital gains, interest, or dividends received from Canadian sources. Instead, Canadian capital gains, interest, and dividends should be reported on their US tax return (1040) and will be subject to US income tax. Note: there is a withholding tax of 15% on dividends paid by Canadian companies to Americans. Capital gains from the sale of Canadian shares and interest paid by Canadian institutions to American investors are not subject to any Canadian withholding tax. Finally, your clients can claim a foreign tax credit on their US tax return for the Canadian withholding taxes deducted.