Are Americans Allowed to Invest in Canada Bonds and Bond Funds?

There are no restrictions preventing Americans from owning Canada government bonds.
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Whether you’re looking to diversify your investments, or have a particular fondness for Canada, there’s no restriction on Americans owning Canadian government bonds or bond funds. If you’re a U.S. resident, you may find it easier to use a broker, but you can buy bonds directly from the Bank of Canada if you choose. Be aware of the potential tax consequences before you purchase.

Canada Bonds

The Canadian economy did not experience the same negative effect on its financial markets as the U.S. did in 2008-9. Government lending programs minimize the mortgage exposure and risk. Canadian government debt is on average about half that of the U.S., as a percentage of gross domestic product. With its vast natural resources, including oil, and a stable international market for its wheat, canola, timber and a variety of minerals, the Canadian economy looks attractive to U.S. investors.

No Restrictions

Like the U.S. Treasury and Federal Reserve Bank, the Bank of Canada sells bonds as part of its monetary policy. The standard terms for bond auctions do not limit which individuals may purchase Treasury bills, notes and fixed-coupon bonds; Canada Savings Bonds are available only to Canadians. Keep in mind that the Minister of Finance has the right to refuse any transaction.

How to Invest

You can purchase Canada bonds and treasury bills directly from the Bank of Canada. The bank's schedule of upcoming auctions includes the type and amount of bonds to be sold. You can buy them in $1,000 increments. You can obtain Canada bonds through your U.S. broker, but you instead could buy an exchange-traded fund or a Canada bond mutual fund, both of which are likely to be much more convenient and diversified than a direct purchase.

Tax Issues

For income earned in Canada, you will be expected to pay Canadian tax. If you own the bonds through a broker, mutual fund or exchange-traded fund, the appropriate taxes will be withheld and reported on your 1099-DIV for the tax year. You may claim a credit or deduction for foreign tax paid when you file your return, to prevent double taxation.

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