Taxes question wrt VT and transferring large amount of cash from Canada

Alright so my IBKR account is open, now I have to pick which fund to buy.

I thought Vanguard VT would be the easiest. This way I only own one fund. Where I’m confused is regarding taxes in CH.

If I understand correctly, profits aren’t taxed (fortune is), but dividends are? If so, does VT issue dividends or do they increase your position based on how much the dividends paid out? I’m not entirely sure that even makes sense, would appreciate some insights here.

I am also planning on selling all my mutual funds shares at my Canadian broker, and bringing the cash to IBKR to put in VT. What will be the basis for taxes in CH?

I read that you have to pay taxes on profits if it makes up at least 50% of your income for that year, otherwise you don’t. What’s the basis for that, is it the difference between the book value and the market value for the Canadian investments I’ll be selling, or is another benchmark used? My profits will probably not amount to 50% of my income for 2020, but the total portfolio value is multiple times that.

Thanks for shedding some light on this, I’m still figuring things out and I don’t speak German too well (which is the language my canton’s tax authority uses)

Correct

If so, does VT issue dividends or do they increase your position based on how much the dividends paid out?

All US funds distribute

I am also planning on selling all my mutual funds shares at my Canadian broker, and bringing the cash to IBKR to put in VT. What will be the basis for taxes in CH?

There is no CGT in Switzerland (exception: professional traders), so basis doesn’t matter. But yeah market - book (book at immigration?) should be it.

You read incorrectly (or you’re bad at logic and made an incorrent inference from what you read). This is neither a sufficient nor a necessary condition for being recognized as a professional trader. A couple of trades in a year rotating your portfolio from one fund into another are highly unlikely to put you into the professional category even if they cause you to exceed 50% threshold.

That topic is seemingly never-ending. :imp:

Only buy products you understand.
VT is a distributing fund that will distribute taxable dividends (in cash) to your account.

As I understand it, merely shifting or rebalancing your portfolio shouldn’t create taxable capital gains (for personal investors residing in Switzerland). Just don’t overdo it to provoke them to classify you as a professional investor.

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Where you will owe capital gains taxes is on your last filing in Canada. “Sell” price of your mutual funds will be the price on the first day you became non-resident of Canada. Make sure you file in Canada for your last year there, otherwise more expensive problems will arise later, initiated by the CRA…

I think, as long as you try to be correct in your tax return and don’t abuse the tax system, everything is usually fairly “laid back” in Switzerland.

Even though they probably will correct small mistakes (if spotted randomly or in a spot check), the tax office people aren’t “out to get you”, so not trying to nail down on criterion to determine that you act professional(ly).

If Canada levies an exit tax anyway, I wonder if one shouldn’t sell the Canadian assets first? (generally speaking)

Chances are that there won’t be any official tax figures in the new country‘s database - so declaring correctly might get a bit of a headache, unless the fund is fully distributing.

I asked the CRA about that before emigrating, and they said I don’t have to pay a departure tax if I only have investments in Mutual Funds (both on registered and cash accounts)

Did you experience something different?

In TFSA/RRSP/RESP, no exit tax. But non-registered accounts, I believe you do need to pay CG tax.

better info for you than any forum…
https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/individuals-leaving-entering-canada-non-residents/dispositions-property.html

The fact it is mutual funds means nothing - it depends on which type of account you hold it in.

Thank you. Yes it looks like I’ll have to pay taxes on the market value - book value at the date I left even if I didn’t sell. Great.

My advice is to call the CRA directly to know exactly what you need to do. There is a form for declaring yourself non-resident to Canada… the longer you delay this, the more expensive of a headache you’ll have (I know from experience). I have no idea whether it is possible to keep pretending you are resident in both countries and declaring the relevant assets to the relevant countries, but I would expect that this is illegal and very likely to result in big troubles in the age of AEOI.

If it has been awhile since you left Canada, you may still be able to get any late fines/interest cancelled.

I had called the CRA to tell them that I was leaving and what the date was. I’d hope they recorded it as they say they did, but I was never asked to fill any form.

Ah OK, good. You are more diligent than I was :slight_smile:
For the capital gains tax, I’d suggest contacting them to get detailed info directly from the horses mouth. Unfortunately, from my experience, Canadian accountants are clueless about non-residency if you are not in the US (and those who really understand international taxation are very pricey) so you are best to go it alone unless it is a very large amount.

Well… you‘d be paying income/dividend taxes in both countries, wouldn’t you? So where would be the issue?

Sure, theoretically you could wait to „leave“ Canada at a point where stock market prices are lower - but that would be it. And as stock prices are rather rising than falling over the longer term, the odds are against you with time.

In any case, I doubt the claim of having made this phone call is worth much, if anything, if it really should come down to them suspecting you of tax evasion (because you would have to pay tax).

so I called them again. Another hour of my life I will never get back.

Declaring you left is enough, it’s recorded and no need to fill a form.
When in CH, there is a 15% tax on every dividend and interest payment. I can declare this to CH and have it considered “taxes paid” so I don’t pay twice. But I’m on a B permit so I’m not sure I can get any kind of taxes refunded from CH.

Also, if I was to sell any of my investments and move the cash to, say IBKR, then I’m hit with a 25% tax. This is very frustrating because it also applies to my TFSA on which I already paid income tax back in Canada… And for the RRSP you will ALWAYS have to pay the 25% even if you sell it after the legal age in Canada (65 or something, where it would have been tax free)

Very disappointed, it would have been cheaper to sell the TFSA when I was still a resident (then it’s free!!!)

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On what legal basis would you be hit with 25% tax? Are you a resident/double resident of canada or what?

Most countries in the world including Canada have residency based taxation. Non resident => they don’t have any right to tax you (besides maybe exit taxes which you should have sorted out when you left).

If these 25% is something your fund charges it, this sounds like withholding taxes that I’d hope you can fully claim back since you shouldn’t owe any actual tax as a non resident.

Are you sure about the TFSA? Should be tax exempt. I would just keep TFSA open and manage as you wish (but don’t contribute!). For the RRSP it actually gets interesting to withdraw in certain cases while living here if you plan to eventually return to Canada as there the 25% income tax rate kicks in at a fairly low income…

It’s not tax free anymore because TFSA is only a Canadian thing. Other government and tax authorities don’t recognize the TFSA, it’s just another investment account to them.

It’s withholding taxes, yes. You get a receipt and if your country has a tax treaty, you can deduct these in your country of residency, where you pay your taxes.

However:

  1. The TFSA is taxed, although I already paid all the taxes when funding the account (that’s how they work)

  2. I’m not sure I can deduct anything from my Swiss taxes at all, since I am on a work permit and have my taxes docked on my paycheck directly every month

  3. The whole amount is taxed at 25% if I withdraw. i.e. I have a an account, book value is 150, market value is 200$. It appreciated 50$, so I’d expect the tax to only be 25% of 50$, but instead it’s 25% of 200$.

  4. If I don’t withdraw, then the dividends are taxed 15%.

  5. If I had withdrawn all the money in my TFSA before I wasn’t a Canadian resident anymore, then I would have paid 0 tax instead of 25%.

See https://www.canada.ca/en/revenue-agency/services/e-services/non-resident-tax-calculator-disclaimer.html

Well, you tried to play tricks with the tax system and got burned. Should have just bought normal shares without any special lock-in rules. Ordinary shares are movable property and taxed at your residence almost everywhere in the world.

If you earn 120k+ a year (500k in GE) you will be asked to file tax declaration here like everyone else and your salary deductions will be treated as prepayments towards your final swiss tax liability. If you earn less than 120k, you can still apply for correction to tax at source for them to consider your situation and recalculate tax, but there’s no guarantee of a positive outcome.

The biggest question now is whether your canadian shenanigans even constitute taxable income under the swiss system.

a) If they are viewed as capital gains, they are not taxable here and your receipt for canadian taxes paid is worthless here.

b) If they are considered taxable income, like a withdrawal of delayed-tax accounts like pillar 2/3a or 401k, then in principle you owe taxes on that withdrawal also to Switzerland. This is the part where income tax treaty will come in and allow you to reduce tax liability to Switzerland on this event by the amount of taxes you already paid to Canada according to your receipt. But only down to $0, not lower. And here’s the next problem: swiss income tax is generally fairly low and would not reach 25% unless we’re talking about 6-7 figure withdrawal, so best case outcome in this case is that swiss will simply waive their right to tax your canadian withdrawals because canada already charged you more. That’s how double taxation agreements work: your pay the max of the two tax rates.

If you become a non-resident of Canada, or are considered to be a non-resident for income tax purposes:

  • you will be allowed to keep your TFSA and you will not be taxed in Canada on any earnings in the account or on withdrawals from it

https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4466/tax-free-savings-account-tfsa-guide-individuals.html#P44_1116

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