Personal Finance

Living and Working in Different Countries – Part 2 of 2

This is part II of an interview I did with frequent commenter Telly regarding her experiences with living in Canada and working in the United States. If you want to check out part I then click here.

You mentioned the Can/USA tax treaty – what is it and how does it help you with your taxes? Are the taxes more complicated? Do you have an accountant?

There is a little used tax article in the US/Canadian tax treaty (Article XXV, paragraph 4) that basically states that a married individual that is a resident in Canada and a non-resident in the US, with income taxable in the US, shall not be taxed greater than a US citizen would be taxed. So basically what this means is that I would file in the US as if I were a resident, which results in a lower tax rate and means I write off my mortgage interest, property taxes, etc. like a US resident would. This should (and did) reduce my taxes payable in the US but didn’t make a huge difference in my taxes payable in Canada (it just meant I was able to use more of the foreign tax credit, which CANNOT be carried forward to following years). Using the tax treaty definitely makes the taxes more complicated but I managed (with some help from a great message board to do our taxes myself. I’m not sure there are many accountants in my area that have used this treaty much and though I managed to save about $2000US by doing our taxes this way, much, if not all of that would have been eaten up by the accountant. For people with a much larger mortgage, and higher interest rate, this could make a bigger difference in taxes paid (both in the US and Canada) so it is definitely something worth looking into.

Are there rebates you can use? Ie the American equivalent of a GST rebate for example?

No. Sorry – I don’t have anything to add here except I wish!

Does working in the US change your investment style? Ie with asset allocation?

It does to some extent in that we’re more likely to have both registered and non-registered investments. With respect to asset allocation, we do have a bit of a different perspective here as well, mostly because both my husband and I have $US investments from work pensions and 401ks. Because these investments are denominated in $US, we tend to keep them in US-based assets (index funds) in our 401ks.

I know nothing about 401Ks – feel free to describe them and their differences with RRSPs.

401k’s are (usually) a company sponsored tax deferred retirement accounts. Unlike RRSPs, you can not make an early withdrawal without incurring a penalty (10%). You can start withdrawing without a penalty at age 59 ½. I have to admit though, I don’t know the details of whether you have to convert to a RRIF or similar after a certain age as you have to with RRSPs.

The current limit for 401k contributions in the US is $15,500. Companies can limit based on percentages as well but most are pretty high. My company limits to 30% so someone making over $51k would hit the $ limit before the % limit here. You can not carry forward contribution room, it is basically use it or lose it (though there is a catch up clause once you reach 50 I believe).

401k dollars are taken (pre-tax) from each pay cheque based on the percentage you choose. The issue, as a Canadian, is that 401k contributions are taxed as income (not deferred) by the Canada Revenue Agency (CRA) so there is no real incentive to contribute. My company does give a 50% match on the first 5% contributed by me so I always take the free money and contribute no more than the 5%. The match is NOT taxed by the CRA (i.e. it is tax deferred). 401k accounts are held by various institutions (Fidelity, JPMorgan, etc.). In our case, we have about 12-15 fund to choose from (which MUCH lower MER than almost any Canadian funds). Also, ½ of my 401k can be transferred to a trading account for a one time $100 fee. I now use all the low-cost index funds available in the US (mostly Vanguard). With MERs of 0.07%, I can’t complain.

We also have a pension plan (recently switched from defined benefit to defined contribution) that pays a % of salary based on years of service and age. This currently works out to 4% for me.

Thanks a lot Telly for doing this interesting and informative interview with me and I look forward to doing more interviews with you in the future!

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12 replies on “Living and Working in Different Countries – Part 2 of 2”

As you can imagine, today is not a good day to be working in the US. I just transferred my pay cheque and got a whopping 1.01% exchange. 🙁

Good interview – it’s always interesting to see how taxes have such weird interactions cross-border. I lived in Russia for a few years and my taxes – both there and in the US – were amazingly complex.

By the way, Telly’s 401(k) is an atypically good one. Mine has a selection of 8 funds, no option to go to a trading account, and only 25% of the first 6% of my gross salary is matched. We have no Vanguard funds in our plan – so I’m stuck with managed funds with high fees. However, a 401(k) is probably the best tax-advantaged investing possible in the States, so I stick with it.

I guess any cross border taxation is bound to be complex.

It’s interesting to learn about 401(k)s – I didn’t realize they were set up by the employer. We have “group” rrsps at larger companies which are sort of the same thing in that there are limitations in what you can buy but you can easily set up a regular rrsp account(s) anywhere else you want.


Thanks for offering a comparison brip blap. I have no idea what other 401k plans are like and although ours is pretty good, there have been times in the past where 401k matches were suspended. In fact, they were just reinstated after about a years hiatus so I’m just getting back to contributing. I’m amazed at how quickly it grows when it’s deducted at source.

My husband’s RRSP group plan (in Canada) is through London Life and the choices are horrible! The MERs range from 1.9% (for a bond fund!) to a whopping 2.8%! We contribute enough to get the match there and the rest of his RRSP contributions are through TD efunds.

Even without the tax deferred advantage of the contribution (just tax deferred growth), I feel comfortable making contributions to my 401k (especially with the current exchange rate).

Even the most ‘expensive’ managed funds in our 401k group selections have MERs of 0.8% at most. Comparing that to my husband’s plans or even TDs index funds, I can definitely see why there are so many complaints about the obnoxious MERs being charged by Canadian fund companies.

Telly, most (some?) group plans allow occasional free transfers out so if there is enough money in his group plan then it might be worth doing a transfer to the TD rrsp (or anywhere else you want). It might be worth while doing this once a year or so.

This is a T2033 transfer-out in cash.

As for his group rrsp – those rates are terrible – does he work for a small company? He should really talk to the administrator at his company (probably HR) and get them to either ask about reducing the MERs or switch to someone else. One of the big benefits of a group rrsp is the ability to negotiate lower fees which clearly has not happened in this case. A typical group rrsp would have average equity MERs of about half of retail so around 1.3%. Most of the saving comes from not going through an advisor who will often get 1% trailer which is a big part of the MER.

London Life is laughing all the way to the bank on that plan.


Thanks Mike. I meant to talk to him about talking to his HR rep because I agree that those MERs are a total rip off.

I didn’t know about the transfer out. It sounds like that is dependant on the plan? Given how crappy his plan is, I’m guessing they don’t offer that alternative but it’s definitely worth asking. Thanks for the info! He hasn’t quite been in the plan a year yet but it’s worth inquiring ahead of time anyway.

It’s amazing that HR agreed to pay those types of fees. I’m guessing they are rather uninformed.

Legally they can’t keep the money if you want to transfer it elsewhere – the question is more if they will charge a fee. Lots of institutions will charge a $125 transfer-out fee.

He’ll have to look into it and decide what to do.


BTW, some very useful info for any Canadians working in the US (resident or not).

On Friday, the Canada-US Income Tax Treaty was revised and will apparently enter into force on Jan. 1, 2008. Basically, employee contributions to a US pension plan (401k) will be deductible on Canadian tax returns.


Here?s the description and link if anyone is interested:

Pensions & other registered plans ? mutual recognition

Who it affects: Cross-border commuters ? individuals residing in one country and working in the other ? who contribute to a pension plan (or any of certain other employment-related retirement arrangements) in the country where they work. Also individuals who move from one country to the other on short-term (up to five years) work assignments, and continue to contribute to a plan or arrangement in the first country. In certain cases, such persons? employers may also benefit.

Current rule: No rule in respect of contributions, meaning no assurance that they may be deducted for tax purposes in the country of employment.

New rule: Provided certain conditions are met, cross-border commuters may deduct, for residence country tax purposes, the contributions they make to a plan or arrangement in the country where they work. Similarly, those who move for work and meet certain conditions can deduct, for source country tax purposes, their contributions to a plan or arrangement in the other country, for up to five years. In both cases, accruing benefits are not taxable.

Examples: (1) A resident of Canada is employed in the U.S., and contributes to an employer-sponsored pension plan there. The employee?s contributions to the plan (up to the employee?s remaining RRSP deduction room) will be deductible for Canadian tax purposes. (2) An employee of a Canadian company is assigned for three years to a related U.S. company. The employee keeps contributing to the employee pension plan of the Canadian company. For U.S. tax purposes, both the employee and the U.S. company will be able to deduct the contributions.

Significance: Facilitates movement of personnel between the two countries by removing a possible disincentive for commuters and temporary work assignments.

Application: Applies for taxation years that begin after calendar year in which the Protocol enters into force. However, if ratification is completed in 2007 the rule applies for taxation years that begin in 2008 (i.e. the same calendar year that the Protocol enters into force).

Thanks for the info Telly – I can mention this in a post or maybe I’ll just post your info since I’m not sure how many people read older comments.


Thanks for the great article and all the info you posted, Telly. I’ve been looking for resources on working on a TN-1 from Canada for a US company and the details and examples have been incredibly hard to find. Do you have any recommendations on other resources to look at to make sure I’m doing this right? Or any catches I should watch out for? Thank you!

Not sure if this is way to late, but I figured it was worth asking.

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