Dr. Garth

Ah, the refuge of the clinic. Shelter from the political storms outside, with barbarians are at the gate. Let’s stop vexing about the things we cannot change, and focus on those we can control. And behold Nurse Jiggles. Did you catch her latest tat? Is that a paw print?

Well, enough yakking. Let’s get to the healing.

“I am a 23 year old dual citizen who has lived in Canada since I was 7l” says William. “I have not filed taxes to the IRS ever and see that it can be a difficult process. As a guy with no American income and makes roughly 40k a year in CAD and has around 30k invested in TD e-series mutual funds, I question if it’s even worth filing American taxes if I do not plan on living in the States. I know of a few expats that have never filed American taxes and have yet to receive any sort of warning or even acknowledgement from the IRS.”

“Is it worth spending the chunk of cash at this age to become compliant and known by the IRS or is it fine to fly under the radar, so to speak, at this point in my life? Additionally, should I avoid the TFSA and leave my investments in a non-registered account or is there a better way to be tax-sheltered as a dual citizen? Is it too early in my life to lock all my investments to date into an RRSP?”

W, the Americans are anal about Hoovering non-resident citizens whose income is earned outside US borders. In theory if you’re a citizen of that country (dual or otherwise) you must declare word-wide income, and be taxed. Of course, Canadians have a tax treaty with the Yanks, avoiding double taxation. But, still you must file a return, which costs money. And (so far) TFSAs aren’t recognized as no-tax accounts, like RRSPs.

So, you can be compliant. Or you can ignore the IRS. Odds are they know nothing about you. Your TFSA will never turn into an international incident, and unless you plan on relocating to the States, or renouncing, nobody cares.

Now, Darren has something more serious to deal with.

“My parents are both aged 92 and due to health reasons will need to sell their SFH and will be moving to a retirement home,” he writes. “We expect net proceeds from selling the house after realtor, moving and legal expenses to be approx $800K. They also have $500K in investments mostly in conservative funds, and some GIC’s (maturing late 2024). To pay the monthly fee at the retirement home of approx $8,700 (boy these places are expensive) they have monthly income from my fathers Government of Canada pension, CPP and OAS that totals approx $6,000.”

“My question / search for advice is what type of investment would you recommend for the $800K proceeds from the house (and possibly extend to the current investments)? They obviously want something that is conservative and safe that wont go down in value, and achieve a reasonable rate of return to cover the monthly income to expenses gap of $2,700.”

First, unlike most people, your folks are blessed with lots of money. They can easily afford to be cared for until the finish line. The odds of a 92-year-old guy hitting 100 are just 6%. For women it’s 11%. In reality, this is a five-year time horizon and presumably they wish to leave money to you and others.

If invested in a traditional B&D portfolio throwing off a 6% return in the form of low-taxed capital gains and dividends, the combined funds would generate $6,500 a month – far in excess of what’s needed, actually growing the pot for their estate. But that means there could be monthly fluctuations. If they cannot accept or deal with that, there’s always a monthly-pay GIC. For example, the biggest bank will pay 3.825% on a fiver, for about four grand a month. It’s all interest, of course, and fully taxable.

Annuity? Nope, bad idea. Too old. In fact, if they just put the money into a HISA or a cash-equivalent ETF paying 4.3% (the current 7-day yield), the monthly retirement home nut would be covered.

In short, your folks not only will never delete their nestegg, they won’t even crack it. That means you and they should be talking about estate planning and the simple ways to avoid taxation when that day finally arrives. This is meaningful money. Get some help.

Now to Regina, where the average house sells for $302,000 but somehow Curtis, 41, managed to spend $925,000. “I would say this blog has made me smart,” he writes, “until I wasn’t – and purchased that house in September 2021.”

“My question, boiled down, is should I be increasing my mortgage payments in anticipation of higher mortgage renewal rates, and to be mortgage free quicker, or take that extra cash for increased payments and invest? The downpayment was $215,000 and the mortgage is $710,000 at 1.99%. The accelerated weekly payments started as $700/week and I can increase to $1,000/week this calendar year. I am abiding by your rule of 90 and I feel like I am still on the right side of the calculation so my feeling would be to increase the weekly mortgage payment.”

We’ll assume you took a five-year mortgage, which comes due in two years – and that it was a variable-rate loan. Also, it wasn’t with Scotiabank, the only major lender not offering static monthly payments on VRMs. So, it’s likely your amortization has ballooned to forty years or more, that monthly payments aren’t covering interest, and your debt is swelling.

Normally the Dr. recommends people invest their extra cash flow, grow the money in a non-reg portfolio (or tax-free TFSA) then dump it against the mortgage principal upon renewal. But not this time. The US election and aftermath means volatility leading to the end of your term. As well, the 1.99% rate renders paying down the principal more efficient. Weekly payments are great, since over the course of a year you make the equivalent of 13 monthly ones – reducing debt faster. And the goal here is to cushion the rate shock when renewal day rolls around.

The new rate won’t be 6%. Nor will it be 1.99%. By 2025, a cost of 3% is reasonable – still a jump.

Thus, the wise thing to do is throw money at the debt. And enjoy that Prairie castle, knowing the same cash in Toronto  would get you a decent garage.

About the picture: “This is Zoey,” writes Michelle. “She lives to play fetch. Hates to go for walks and could care less about dog treats. She knows what she wants. Zozo just celebrated her fifth birthday. Thanks for your daily blog. I appreciate the information you and your guest bloggers offer.”

To be in touch or send a picture of your beast, email to ‘[email protected]’.