Avoiding fx charges on US income

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denver
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Avoiding fx charges on US income

Post by denver » 07 Jul 2017 10:42

This feels to me like a fairly simple problem - but I'm guessing it could turn out complicated. So I'll provide some context (hopefully not TMI).

The fundamental objective is to convert some ongoing USD income into CAD avoiding fx charges.

Context.
My wife and I run a small web site that earns revenues from Google ads (income in CAD) and from subscriptions (income to paypal in USD). The subscription portion of the income is about $10,000 USD/year and is expected to grow.

Our savings are spread out in a number of accounts mostly at TDWH. We each have RRSP and TFSA accounts as well as joint non-registered accounts for CAD and USD. Our USD non-registered account is fairly close to the $100K foreign property threshold and I'd hoped to avoid a T1135 filing (as I've heard they are tedious).

So ideally I'd have the USD revenue wind up in our non-registered CAD brokerage account. But I really don't want to incur bank FX charges.

Which i guess brings me to this Norbert gambit thingee I've heard about.
I understand that the idea is to buy a cross-listed equity with USD and sell (simultaneously) in CAD on the other exchange. So my questions...

1. Given the objective and context - does this seem like the right approach?
2. Would holding the US equity - even for a few seconds - trigger the T1135 threshold?
3. Practically, how do I do the gambit? Presumably I can't do it online... should i just call TDW and instruct them? Will they know what the heck I'm asking?

Cheers and TIA.

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Re: Avoiding fx charges on US income

Post by Joebaba » 07 Jul 2017 13:48

Hello Denver,

We did three Gambits back in the summer of 2015.

First off you asked “Is this the right approach?”. Well – if you simply transfer $10,000 US with TDDI without using a Gambit, it will cost you about 2% or about $200. You have to decide if that’s worth the effort of a Gambit.

Then you asked, would holding the US Equity for even a few seconds trigger the need for a T1135. Sorry I can’t answer that.

Then you asked, practically, how to do it. I’ve listed our experience below.

We did the most basic Gambit – no short selling. It worked very well, but it does have one shortcoming.

1. In our US Dollar investment account (unregistered), we bought X units of DLR.U. This can be done online. There will be a bid/ask spread just like any other stock or ETF – it is usually one cent per $10 unit - $9.93/$9.94 at this instant in time.
2. We waited 3 days for that trade to settle.
3. Once the trade was settled, we phoned TDDI and asked them to journal our units of DLR.U from our US investment account to our Canadian investment account. They understand what that means – no problems there at all. That happened same day, but not immediately. I suspect if you did it late in the day, it might not happen until the next day.
You can’t do that online.
4. After the journal was executed, we then had 0 units of DLR.U in our US account. And we now had Y units of DLR in our Canadian account.
X units of DLR.U should come to the same amount of US cash as Y units of DLR in Canadian cash – this is where you avoid the currency exchange cost.
5. Once the units showed up in our Canadian account, we sold them – again, this can be done online. Again there is a bid/ask spread of a penny.
6. We waited 3 days for that trade to settle.
7. We now had the Canadian cash in our Canadian investment account.
8. It costs $10 for each of the 2 trades, and probably about another two tenths of a per cent for the bid ask spreads.

The shortcoming….
Because of settlement and journaling, it was 4 full days from the day we bought the DLR.U in our US account, until they were journalled to our Canadian account. So during that time, the US dollar can move versus the Canadian dollar. And because you’re holding the DLR.U, you will either gain or lose from that movement.
Over the long haul and multiple Gambits, those movements should balance out, so I wasn’t concerned with that, but you might be. You could easily end up losing more than the 2% you're saving on any one Gambit. Though you should gain it back on some future Gambit.

If that shortcoming concerns you, then you might want to look further into the “Scrappy Gambit” where you short on one side of the coin, and buy on the other side, at roughly the same time. This requires you to convert one or both of your accounts to margin accounts.

Back to our Simple Gambit, I’d definitely recommend doing this on a Monday, so you don’t add weekend days to the mix. Because that could add 2 more days where the US/CDN dollar rate will change.

Also, there has been some discussion on here recently to avoid acquiring dividends/distributions while you hold the stock or ETF you use for the Gambit. The DLR does not have dividends, so no problem there (I don’t think).

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adrian2
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Re: Avoiding fx charges on US income

Post by adrian2 » 07 Jul 2017 13:59

denver wrote:
07 Jul 2017 10:42
2. Would holding the US equity - even for a few seconds - trigger the T1135 threshold?
A dual-listed company is not to be included in T1135, even when held in a USD denominated (sub-)account.
Imagefiniki, the Canadian financial wiki
“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]

denver
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Re: Avoiding fx charges on US income

Post by denver » 07 Jul 2017 14:42

adrian2 wrote:
07 Jul 2017 13:59
denver wrote:
07 Jul 2017 10:42
2. Would holding the US equity - even for a few seconds - trigger the T1135 threshold?
A dual-listed company is not to be included in T1135, even when held in a USD denominated (sub-)account.
Oh right.... You mean a Canadian dual-listed company.... yes that makes sense.
Thanks.

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adrian2
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Re: Avoiding fx charges on US income

Post by adrian2 » 07 Jul 2017 15:12

denver wrote:
07 Jul 2017 14:42
adrian2 wrote:
07 Jul 2017 13:59
A dual-listed company is not to be included in T1135, even when held in a USD denominated (sub-)account.
Oh right.... You mean a Canadian dual-listed company.... yes that makes sense.
Aren't (almost) all like that?
Imagefiniki, the Canadian financial wiki
“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong.” [Richard P. Feynman, Nobel prize winner]

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Re: Avoiding fx charges on US income

Post by queerasmoi » 09 Jul 2017 11:36

denver wrote:
07 Jul 2017 10:42
My wife and I run a small web site that earns revenues from Google ads (income in CAD) and from subscriptions (income to paypal in USD).
A particularly relevant question is - how will you get the USD out of PayPal into a Canadian-domiciled USD account? Paypal does not make this easy.

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Re: Avoiding fx charges on US income

Post by SoninlawofGus » 09 Jul 2017 16:43

queerasmoi wrote:
09 Jul 2017 11:36
A particularly relevant question is - how will you get the USD out of PayPal into a Canadian-domiciled USD account? Paypal does not make this easy.
Good question -- anyone got a good answer? When we took a trip to the States a few years ago, we found that some locations accepted PayPal. We used up our USD PayPal savings that way.

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Re: Avoiding fx charges on US income

Post by denver » 31 Jul 2017 14:02

queerasmoi wrote:
09 Jul 2017 11:36
denver wrote:
07 Jul 2017 10:42
My wife and I run a small web site that earns revenues from Google ads (income in CAD) and from subscriptions (income to paypal in USD).
A particularly relevant question is - how will you get the USD out of PayPal into a Canadian-domiciled USD account? Paypal does not make this easy.
Yeah... just finding this out. The plan was to simply connect my USD TD account to PayPal. But this transaction failed... TD didnt give a clear reason other than "you can't do that with these accounts". However they suggested that I set up a US domiciled account with TD Bank (america) and then use cross-border linking to transfer with a TD VISA Debit card they would issue.

So for me the whole thing would look like:

Paypal (USD) --> TDBANK (USD) --> crossborder td visa debit --> TDCanadaTrust (USD) --> TDW brokerage (USD) --> Norbert --> TDW brokerage (CAD)

Seems like a bit of a hike... but I really hate paying fx charges.

Make sense?

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Re: Avoiding fx charges on US income

Post by gobsmack » 31 Jul 2017 14:28

denver wrote: So for me the whole thing would look like:

Paypal (USD) --> TDBANK (USD) --> crossborder td visa debit --> TDCanadaTrust (USD) --> TDW brokerage (USD) --> Norbert --> TDW brokerage (CAD)

Seems like a bit of a hike... but I really hate paying fx charges.

Make sense?
I am not sure about the visa debit card step. I never had to use mine. You can wire transfer money for free with a crossborder account (up to $100k daily). You just need to call them and they will do the wire transfer for you. The funds still need to land in a TD Canada Trust USD account because they cannot be wired directly to the brokerage account.

Keep in mind that you can contribute USD to your RRSP and TFSA accounts by transferring shares of TDB8152 (USD HISA). So unless you need to spend CAD or you want to invest in something that is only listed in the TSX (e.g., VAB, XIC etc), there is no need to convert to CAD.

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Re: Avoiding fx charges on US income

Post by Joebaba » 31 Jul 2017 16:01

Hi,

I can confirm that the steps you’ve listed work like a charm.
We winter in the south, and do those exact steps for moving money back and forth from our TD Canada trust account to our US TD Bank account.

Be aware that there are maximums with the Visa Direct transfers - $2,500 per day, $10,000 per week and $25,000 per month.

The Visa Direct Transfers can be done online, and happen in close to real time.

Also be aware that there is a $9 fee for transfers up to $1000, and $13 for transfers over $1000. But those fees will be fully rebated if you have a “Cross Border Banking” account (which you have). The fees are usually rebated in 2 or 3 days.

And as I’d said in my previous post, we’ve done the gambits before as well.

All the steps can be done online with the exception of possibly the Norbert step (depends on the style of Norbert you use), and the PayPal step (which I’m unfamiliar with).

And when you write it all down, yes it seems like a “bit of a hike”, but in reality, once you’ve done one or two, it takes very little effort, other than phoning TDDI to do the journaling for the Gambit.

And I’m with you on FX fees.

Joe

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kcowan
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Re: Avoiding fx charges on US income

Post by kcowan » 01 Aug 2017 11:09

I was under the impression that Visa Direct had the dreaded 2.5% vig? Any experience with it?
For the fun of it...Keith

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Re: Avoiding fx charges on US income

Post by Joebaba » 01 Aug 2017 12:57

Hey Keith,

If I start with $1000 USD in my US dollar account with TD Canada Trust, and then use a Visa Direct transfer to move it to my TD Bank account (which is US dollars), then I end up with $1000 USD in the TD Bank account (and $0 in my TD Canada Trust account).
There is a $9 fee, but that’s rebated if you have a “Cross Border” account with TD Canada Trust.
So no foreign exchange fee.

Just for clarification, when I say….
"TD Canada Trust" - that is the Canadian Bank.
"TD Bank" - that is the American bank.
They are affiliated, but different entities.

You may be thinking of the situation where you use a Visa Direct transfer to move money from a Canadian Dollar account, to a US Dollar account. In that situation, I’m sure either TD Canada Trust, or Visa Direct, will ding you with the 2.5% charge.

Joe

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Re: Avoiding fx charges on US income

Post by kcowan » 01 Aug 2017 18:48

Thanks Joe
I was trying to clarify the latter because some people in Mexico claim to transfer money with Visa Direct and I cannot believe that it is free (beyond the fees). I asked someone who claimed that it was and when I challenged him on it, I never heard another word.
For the fun of it...Keith

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Re: Avoiding fx charges on US income

Post by Joebaba » 01 Aug 2017 21:14

Hey Keith,

I just simulated a Visa Direct transfer of $1000 CDN from TD Canada Trust to my TD Bank (US) account.

I started with X-rates.com to get their rate, and I got 1.2543. At XE.com I got 1.2543 as well.
I then started the Visa Direct transfer using TD EasyWeb, and when I hit calculate it offered the transfer at 1.2834.

So you are correct - they are charging 2.9-ish%.

Joe

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Re: Avoiding fx charges on US income

Post by pmj » 01 Aug 2017 21:56

1.2834/1.2543 = 1.0232 ... 2.32%
Peter

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Re: Avoiding fx charges on US income

Post by Joebaba » 02 Aug 2017 00:22

Right you are, Peter.

Joe

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Re: Avoiding fx charges on US income

Post by kcowan » 02 Aug 2017 09:25

Thanks Joe and Peter.
So at TD, the fees are
$1.50 for domestic transfers
$8.95 for international FX up to $1000, and
$12.95 for $1001 to $2500, the daily limit.
Plus 2.32% compared to XE.
For the fun of it...Keith

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Re: Avoiding fx charges on US income

Post by denver » 04 Aug 2017 18:37

Thanks for the confirmation Joebaba. Still setting things up - but going very well so far.

Had to set up a TDBANK cross-border banking account. (USD domiciled in US). I set up the TD 60 Plus chcking. This account waives the monthly fee for a minimum balance of $250. It literally took 3 mins online to set this up. (But I had to call the cross-banking support number to get it integrated to my Easyweb - so I could see the TDBANK transactions via my regular sign-in).

Had to attach the TDBANK to my PAYPAL account. 1 minute online. Easy peasy. However i used the method where they make two small deposits and those took a day to show up on Easyweb,

Transferred the USD from PayPal to TDBANK. 1 minute online. But takes 3 - 5 days to clear. Started that yesterday.

Next up is the transfer to my USD account at TDCanadatrust. It's well over daily Visa Direct - so I'll just have them wire it.

I'll report back when we get it into there and over to the brokerage account for the norbert thingee. Pretty pleased that this seems to work well.

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