Are you considering moving to Canada from the U.S. and wondering about the tax implications?
If so, we are here to help.
As a starting point, here are some questions to ask yourself:
What assets do you currently own?
- Home in the U.S.
- Will you be selling?
- Will you be renting out your home?
- Will you be buying a home in Canada?
- Investments in the U.S.
- Do you have a portfolio of investments with a U.S. broker that are not in a qualified retirement account?
- Do your investment and bank accounts in the U.S. have a “cost” of more than $100,000 CAD?
- Do you own an interest in a U.S. LLC or are you a trustee or beneficiary of a U.S. trust?
- Pensions in the U.S.
- Do you have a Roth IRA?
- Do you have a U.S. Individual Retirement Account (IRA) or a 401k account from your current or previous U.S. employer?
- Stock compensation benefits from U.S. employer whom you will continue to work for after coming to Canada
- Do you have unexercised employee stock options or unvested Restricted Stock Units (RSUs)?
Whether you sell your U.S. home before or after your move to Canada could have tax implications for you in one or both countries.
You can lose the ability to claim the home sale exemption ($250,000 per person) if you have not lived in the home in 2 of the last 5 years prior to sale.
Note that part of the capital gain when you sell in the future may also be taxable in Canada. However, an optional election may be filed.
This needs to be timed properly so that you benefit from the principal residence exemption in Canada and are not subject to the Speculation and Vacancy Tax if purchasing in B.C.
When you move to Canada, the cost of your investments for Canadian tax purposes will be different from your cost basis in the U.S. resulting in a mismatch when reporting capital gains.
Note that certain U.S. brokers will no longer hold investments for clients with foreign (non-U.S.) addresses. You may want to transfer these investments to a Canadian broker.
You may have a disclosure requirement (Form T1135) on your Canadian return when you move to Canada. This will increase your tax compliance fees. It is important to file this form on time annually as late-filing penalties apply. There may be exemptions in the first year of Canadian residency.
U.S. and Canadian tax rules may have inconsistent treatment with respect to these entities and planning is required to prevent potential adverse tax consequences and onerous foreign reporting requirements.
To retain its tax-free status in Canada, an election needs to be filed in your first year in Canada and no further contributions can be made while a resident of Canada.
It is possible to roll over an IRA to a Canadian Registered Retirement Savings Plan (RRSP). However, it is a complicated process and appropriate planning needs to be done to ensure no double tax.
401ks cannot be rolled over directly to an RRSP and may need to be converted to an IRA prior to moving to Canada.
Some Canadian investment advisors are licensed to hold pension investments in both U.S. and Canada.
Unexercised stock options and unvested RSUs may require a complicated allocation of income between U.S. and Canada depending on where the work is performed prior to exercise (for stock options) and prior to vesting (for RSUs).
Will you be working remotely in Canada for a U.S. company as a subcontractor or as an employee?
The US/Canada Tax Treaty determines taxation of this income based on where services are performed. If you are an employee, your U.S. employer may have Canadian reporting and withholding tax obligations.
What else should you be considering?
- You may pay more taxes in Canada than you’re used to in the U.S. (unless you previously lived in a high state tax jurisdiction like California).
- You cannot file jointly with your spouse in Canada but can choose to combine certain deductions like donations and medical expenses on one person’s return if it is more beneficial.
- If you hold a green card, you will need to keep filing as a U.S. tax resident in order to keep your green card. This may expose you to double tax if you are also a Canadian tax resident.
- If you give up your green card after you are considered a long-term resident, you may be subject to U.S. exit tax and additional tax reporting when you eventually surrender it.
- If you are a U.S. citizen and/or green card holder moving to Canada, you are subject to tax on your worldwide income in both countries and will need to claim either the foreign earned income exclusion, or foreign tax credits, to prevent double taxation. The foreign tax credit mechanism makes use of the U.S./Canada Tax Treaty provisions.
You may also have additional foreign reporting in the U.S., and certain Canadian investments may not be appropriate for U.S. tax purposes.
At SKL Tax, we provide cross-border tax advice to help you with your tax planning prior to your move. We can also prepare both your U.S. and Canadian tax returns in the year of your move, and on an ongoing basis.
You can reach us at 604-732-1515.
Disclaimer: The information provided on this page does not constitute tax advice and is intended to provide general information only.