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How to break up with the IRS through expatriation, Part II: The exit tax

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By Elena Hanson

Special to the Financial Independence Hub

In my last blog I talked about expatriation and reasons you may want to give up U.S. citizenship or long-term resident status (i.e., green card). The key reason to expatriate is to end the reporting and tax obligations that come along with the privilege of being a U.S. citizen, especially when you don’t reside there. But before ending your obligations, you may have to pay expatriation tax, also known as exit tax.

Canada has a similar tax, called departure tax, but it’s imposed on your assets when you are no longer willing to reside in Canada.

Who is subject to the exit tax?

Generally, exit tax applies to U.S. citizens who terminate their citizenship and to long-term residents who terminate their status. However, if you are a long-term resident or green card holder who was not a U.S. resident for eight out of the 15 years leading up to expatriation, you are not subject to the exit tax.

In fact, just being a U.S. citizen or long-term resident doesn’t automatically subject you to exit tax upon expatriation. Last time we discussed implications of being deemed a covered expatriate for U.S. tax purposes. You must satisfy one of three tests, which are aimed at identifying people who are high-earning, high net-worth individuals and who are not compliant. Continue Reading…

Retired Money: Can the Work-from-Home theme protect growth stock portfolios from Covid damage?

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MoneySense.ca/Photo by Claudio Schwarz on Unsplash

My latest MoneySense Retired Money column looks at the theme of emphasizing Work-from-Home (WFH) and Stay-at-Home (SAH) stocks to stay partially invested in stocks but to protect against the ravages of a second wave of the Coronavirus bear market. Click on the highlighted headline to access the full column: Unpacking the new Work-from-Home ETFs.

Thus far, investors have enjoyed a solid recovery from the initial shock of March. How much depends on the extent to which they embraced the SAH stocks and avoided those directly in the Covid-19 blast zone: airlines, cruise ships, hotels, office REITs and others directly affected by global lockdowns.

Periodically the latter rebound on renewed Covid optimism, and are hence dubbed “Recovery” stocks. These have so far proven to be short-lived bounces. But the hoped-for V shape economic recovery expected by optimists seems now more elusive as major American states like Texas and Florida lock down again over a second Covid wave. That bolsters the case for a more long-term stance on WFH/SAH stocks like Zoom Video (ZM), DocuSign, Netflix and Teledoc (to name four I own and so far have profited from.)

Don’t forget the big tech companies like Facebook, Amazon, Google and Netflix (FANG) as well as Apple and Microsoft, all of which locked-down consumers rely on to keep a semblance of social interaction going with the outside world.

2 WFH ETFs coming

At least two WFH ETFs are in development to capitalize on this trend, more on which below. But by the time they are available it may be a bit late: most of the names are obvious ones and can be purchased individually at full-service or discount brokerages. There are 100 (mostly U.S.) stocks in Jim Cramer’s Covid-19 index, which he created soon after the pandemic and bear market began. Continue Reading…

Retired Money: When do Pension Buybacks of extra service make sense?

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MoneySense: Photo by LinkedIn Sales Navigator on Unsplash

My latest MoneySense Retired Money column looks at the complex question of Pension Buybacks: putting extra money into a Defined Benefit pension to in effect “buy back” extra years of service. You can find the full column by clicking on the highlighted headline: Should you buy back pensions from your Employer? It ran on June 19th.

While this column often adds my own personal experience, this is a topic that I have never had the opportunity to explore. I can say that while I am now receiving pension income from two rather modest employer DB pension plans, the chance to buy back service never arose. If it had I probably would have jumped to take advantage of it as the guraranteed-for-life annuity-like nature of a DB plan strikes me as being particularly valuable, especially in these days of ultra-low interest rates and ever-more-volatile stock markets.

If your DB pension is inflation-indexed all the better. Again I lack such an employer pension and my wife is not in any pension at all, so our only experience in inflation-indexed pensions are the Government-issue CPP and OAS, so far deferred by my partner.

You will need cash for a buyback, or you can tap RRSPs or both. If cash, you must have available RRSP contribution room this year. Buybacks fall under the Past Service Pension Adjustment calculation, or PSPA. The PSPA reduces your RRSP in the current year, and Ottawa permits an $8,000 contribution beyond your RRSP room. Thus, the value of your buyback may be greater than your RRSP room once you consider employer contributions and future benefits.

In the MoneySense column, financial planner Matthew Ardrey of Tridelta Financial says the biggest “pro” for a buyback is simply a bigger pension at retirement. Since pensions reward longer service, buybacks let you buy more past service, and the deal is sweeter still if your employer matches contributions.

Longevity, interest rates, employer matching all considerations

Longevity can be a pro or a con, depending on when you die. The longer you live the more attractive the pension becomes, and with it the value of a buyback.   Continue Reading…

The Evolution of Real Estate Investing

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Image by Pixabay

By Emma Williams

Special to the Financial Independence Hub

An insight into the modern methods of real estate that is much more accessible and inclusive!

We have now shifted from steel locks to smart locks in our homes, but for a long time, the conventional real estate systems continued functioning with similar patterns. One of which is real estate investments.

Real estate investment involves the purchasing and sale of a real estate asset for rental profits or market returns. Historically, this investment has yielded better and continuous returns for investors. However, a major roadblock to this remained its accessibility and high barriers in terms of capital and liquidity. For a long time, this segment was exclusive to a specific niche.

However, with modern instruments and advanced innovations at hand, real estate investment has the potential to widen its range. Through these new models, the potential of real estate investment has entirely been transformed.

Let’s take a look at the future of real estate investment with such modern innovative tools.

Investing With REITs

Image by Pixabay

Real Estate Investment Trusts (REITs) are one of the techniques that has made property investments accessible to a certain extent. With REITs, individuals invest in companies that further deal with real estate investments. In return, shareholders receive dividends in proportion to their investment share in the company.

With REITs, instead of directly investing in real estate an individual would invest in a company that has invested, in part, in real estate. The company then offers dividends through its rental income to its stakeholders. Any investor can hold shares and indirectly become an investor in a real estate asset. This eliminates the need for high capital needed in a traditional system. Continue Reading…