Claiming Past Management Fees - Dan Walkow - david ingram expert US CANADA cross border non-resident income tax help and prepara

Dear David,
Since 2002 I've never claimed any of the $39k management fees that were paid at source in Canada to the Canadian firm who has been managing these funds for us. Since I have never received any cash from the sale of these funds I never claimed any capital gains or expenses against this investment. However, because of the recent stepped up enforcement of CRA rules regarding non-resident holders of Canadian "open" accounts, we are currently in the process of transferring this portfolio to another investment firm in Canada who is licensed to deal with U.S./Canadian Securities in both countries. When I report the sale of these funds to affect this transfer, do I claim the total capital gain ($26K) since 2002? If so, how much of the $39k in management fees over the same period can I claim as an expense against this total capital gain? Thank You.
We each have had dual U.S./Canadian citizenship since moving from Canada to the U.S. in 1994 and during that time have always filed married, joint tax returns in the U.S., always abiding by the current rules of the U.S./Canadian Tax Treaty for all our Canadian pension incomes and taxes paid to Canada. 
david ingram replies:

Beware - you do not want a 'firm' which is licenced, you want a specific individual who has made the US / Canada investment his or her business and has worked at it for a while.  I have spent the last four months trying to get proper paperwork from one major organization who has tried but been very unsuccessful in providing the paperwork to the client.

For instance, they provided over 15 NR4 slips with 15% tax deducted.  That implied 15% deducted on pensions,  royalties or dividends.  In fact, the company deducted 15% on interest income which should only have 10% deducted under article XI of the US Canada Income Tax Convention.

But back to you.

In another case, a client told me that I should be recommending their securities person in Vancouver because their advisor was licenced to deal with US / Canada situations.  I went to the person's website at the company and in 15 pages, the person did not mention US Canada situations anywhere.

Compare that with Dan Walkow of Seabank Capital at who specializes in US Canada investment situations.  Dan goes to California and talks to the Canadian Clubs, etc and really knows what he is doing in these situations. Dan's site starts with a blended US Canada flag and a first paragraph which states:

"Welcome to Seabank Capital. We are a Canadian based private investment management boutique serving clients in Canada and the United States.  Choosing us to help you manage your investments gives you the advantage of having a team of investment management professionals with extensive investment experience and global investment credentials working
exclusively on your behalf, every day!"

Darrell Thomson of Blackmont securities in Toronto also specializes in US Canada investors.

I do not know of any others who are doing this US Canada investing on an exclusive or almost exclusive basis. If you have found someone else, please let me know so that I can recommend them as well.

If you are one of three clients he or she has in your position, be extremely wary.

Back to your situation. 

I do not understand why you are 'selling' your shares to transfer them.  Just have the existing firm deliver the shares to the other company.  I do not know of any reason to sell them but if  you are selling them and you have been a non-resident of Canada and fulfilling the terms of the US Canada Tax Treaty as you suggest, you will have been paying Canada 10% tax on the interest and 15% tax on any dividends credited.  Since non-residents of Canada do NOT pay Canada Capital gains tax on the sale of publicly traded shares (mutual funds, etc.), there will be NO Canadian tax liability to Canada at the time of transfer. Your new US Canada broker should have told you that if they truly know what they are doing.

So, every year for 2002, 3, 4, 5, 6 and 7 and 8 (and in the future if using a Canadian Broker), you should have been paying the 10% and the 15% tax to Canada and then reporting the internal earnings again on schedule B of your US return and claiming credit for the tax paid to the US on US form 1116. as well, you should have been filing US forms TDF 90-22.1

The management expenses paid should have been a claim on your US return although an alternative for you might have been to file a Section 217 return in Canada.   In a 217 return, you get the opportunity to pay Canada the tax you would have paid as a resident on the Canadian source income and expenses and get to claim pro-rated exemption amounts based upon the relationship of the Canadian income to your world income.m  Based upon your question, it is unlikely that it would have worked out to less tax for you but you could investigate it.

As you have described your situation, the management fees are generally / usually / not likely deductible because they should have been claimed annually and it is too late to change your US returns for 2002, 2003 and 2004.  You can still claim them on your US return for 2005, 6 and 7 by filing US form 1040X.

What i think you have been doing is playing both ends against the middle.  For instance, if you have RRSP's, they are to be reported on US form 8891 on an annual basis as per question 8 on schedule B of your 1040.  I am betting that if you have them, you have been taking out less than $5,000 and paying 10% tax withholding to Canada when non-residents have a minimum withholding tax of 25%.  I think you have been reporting anything from your Cash account in Canada and not putting the  Canadian account income on your US return.  If this is correct, you had better straighten it out no matter what it costs.   If you are caught, which is likely one of these days, the penalties might be enough to wipe you out.  Better to fess up and get away with less penalties.  i also bet, from your question that you have been checking off NO to question 7 on the bottom of schedule B of your US 1040.  The minimum penalty for checking no is $10,000 per year when you have foreign accounts. You need to catch up on 6 years of form TDF 90-22.1.  Over 1000 people are being fined in Vancouver now for dealing with Jerome Schneider, a Vancouver consultant who was telling his clients to say no to hide their money from the US tax man.  Jerome, himself,  was fined $100,000 and given 8 months in jail when he was arrested in San Francisco on a vacation.

The person who has been looking after you so far has been violating US and Canadian Securities law if they had any idea that you  were living in the US and they were handling your account because you used a son's  address or a Canadian address for their convenience.  Unfortunately, when these go wrong, it is YOU who pays the penalties. You have to wonder about their professionalism. In fact, under US law, it is absolutely illegal for them to accept a phone call from you if they know you are in the United States at the time of the phone call if the subject is about changing the contents of your portfolio by buying or selling "anything" that can be considered a security.  They can Not accept a letter either.

I do not know what the final figure was but i know that Blackmont spent over $5,000,000 in one year to register the company around most of (not all) the states when Blackmont was still called Yorkton Securities. 

It is a BIG deal for the company to do so. TD Waterhouse started the process for the Canadian operation and then abandoned it for instance. They (TD) had a dozen or so operatives who also went through great hoops to get themselves registered and then were left sitting there,  saying,  "what happened" when TD Waterhouse stopped the process.

So be careful.  Both the firm and the representative must be registered to deal with you in the US.  Anything and everything earned in Canada MUST be reported on your US return.  If you are in the process of changing things now, there is a big chance that something will trigger interest from Canada.  If Canada gets interested about the affairs of a non-resident, Canada's CRA AUTOMATICALLY sends the information to the IRS and the IRS does the same thing in reverse.

Hope this helps!

david ingram's US / Canada Services
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This is not intended to be definitive but in general I am quoting $900 to $3,000 for a dual country tax return.

$900 would be one T4 slip one W2 slip one or two interest slips and you lived in one country only (but were filing both countries) - no self employment or rentals or capital gains - you did not move into or out of the country in this year.
$1,200 would be the same with one rental
$1,300 would be the same with one business no rental
$1,300 would be the minimum with a move in or out of the country. These are complicated because of the back and forth foreign tax credits. - The IRS says a foreign tax credit takes 1 hour and 53 minutes.
$1,600 would be the minimum with a rental or two in the country you do not live in or a rental and a business and foreign tax credits  no move in or out

$1,700 would be for two people with income from two countries

$3,000 would be all of the above and you moved in and out of the country.
This is just a guideline for US / Canadian returns
We will still prepare Canadian only (lives in Canada, no US connection period) with two or three slips and no capital gains, etc. for $200.00 up. However, if you have a stack of 1099, or T3 or T4A or T5 or K1 reporting forms, expect to pay an average of $10.00 each with up to $50.00 for a K1 or T5013 or T5008 or T101 --- Income trusts with amounts in box 42 are an even larger problem and will be more expensive. - i.e. 20 information slips will be at least $350.00
With a Rental for $400, two or three rentals for $550 to $700 (i.e. $150 per rental) First year Rental - plus $250.
A Business for $400 - Rental and business likely $550 to $700
And an American only (lives in the US with no Canadian income or filing period) with about the same things in the same range with a little bit more if there is a state return.
Moving in or out of the country or part year earnings in the US will ALWAYS be $900 and up.
TDF 90-22.1 forms are $50 for the first and $25.00 each after that when part of a tax return.
8891 forms are generally $50.00 to $100.00 each.
18 RRSPs would be $900.00 - (maybe amalgamate a couple)
Capital gains *sales)  are likely $50.00 for the first and $20.00 each after that.

Catch - up returns for the US where we use the Canadian return as a guide for seven years at a time will be from $150 to $600.00 per year depending upon numbers of bank accounts, RRSP's, existence of rental houses, self employment, etc. Note that these returns tend to be informational rather than taxable.  In fact, if there are children involved, we usually get refunds of $1,000 per child per year for 3 years.  We have done several catch-ups where the client has received as much as $6,000 back for an $1,800 bill and one recently with 6 children is resulting in over $12,000 refund. 

Email and Faxed information is convenient for the sender but very time consuming and hard to keep track of when they come in multiple files.  As of May 1, 2008, we will charge or be charging a surcharge for information that comes in more than two files.  It can take us a valuable hour or more  to try and put together the file when someone sends 10 emails or 15 attachments, etc. We had one return with over 50 faxes and emails for instance. 

This is a guideline not etched in stone.  If you do your own TDF-90 forms, it is to your advantage. However, if we put them in the first year, the computer carries them forward beautifully.

IRS Circular 230 Disclosure:  To ensure compliance with requirements imposed by the IRS, please be advised that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used or relied upon, and cannot be used or relied upon, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.--

Disclaimer:  This question has been answered without detailed information or consultation and is to be regarded only as general comment.   Nothing in this message is or should be construed as advice in any particular circumstances. No contract exists between the reader and the author and any and all non-contractual duties are expressly denied. All readers should obtain formal advice from a competent and appropriately qualified legal practitioner or tax specialist for expert help, assistance, preparation, or consultation  in connection with personal or business affairs such as at or  If you forward this message, this disclaimer must be included." -


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