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Financial Considerations for Canadians Moving to the U.S.
Posted on: October 1, 2019
Are you a Canadian resident who is considering moving to the US? If you are, there are some tax considerations that you should be aware of...
Becoming a Non-Resident of Canada for Income Tax Purposes
In most cases, an individual who leaves Canada on a permanent basis would want to be considered a non-resident of Canada. From a Canadian income tax perspective your residency is dependent on your particular facts and circumstances. Generally, you are an emigrant for income tax purposes if you leave Canada to settle in another country and you sever your residential ties with Canada.
Severing residential ties may include: disposing of or giving up a home in Canada and establishing a permanent home in another country; having your spouse or common-law partner or dependants leave Canada; and disposing of personal property and breaking social ties in Canada, and acquiring or establishing them in another country.
Your residency status could also be affected by the severing or not of other residential ties, such as: a Canadian driver’s license; Canadian bank accounts or credit cards; and health insurance with a Canadian province or territory.
Deemed Disposition of Non-Registered Investment Assets
When you cease to be a resident of Canada, you are considered to have disposed of many of your non-registered assets, from a Canadian income tax perspective. This is referred to as a “deemed disposition” and means that you trigger all your gains and losses on those assets. If this results in net gains, there may be Canadian income tax payable.
When there is a net gain because of the “deemed disposition”, the US will allow you to elect to treat those same assets as having been disposed and reacquired at the same time for US income tax purposes. This means that the capital gain that was subject to Canadian income tax when you leave Canada because you were considered to have sold those assets, will not be subject to US income tax when you sell those assets as a US resident.
It is important to be aware that among other exceptions, assets such as your principal residence and other real property located in Canada your RRSP, RESP and TFSA will NOT have the same tax implications because they will not be subject to a “deemed disposition” for Canadian income tax purposes.
Maintaining Registered Accounts in Canada such as RRSP, RESP, and TFSA
Many individuals consider keeping their RRSP, RESP and TFSA as US residents. However, as a US resident, you need to be mindful that income earned in the TFSA will be taxable for US income tax purposes. Similarly, income earned in the RESP may be taxable for US income tax purposes.
The income earned in an RRSP is generally deferred for US federal income tax purposes but may be taxable for State income tax purposes depending on the state in which you are a resident.
Finally, as a permanent resident of the US, there are other tax considerations you should be aware of such as US estate tax which may be imposed when you pass away, and US gift tax when you give assets away.
As you can see there are many complexities when you are thinking of moving to the US and because of this, it is it is very important that you consult with a cross-border tax planner before you move.
Working with a Cross-Border Wealth Management Team
For ex-patriates who maintain registered assets in Canada and non-registered accounts in the U.S., it can be highly beneficial to work with an team that is licensed to manage investment accounts on both sides of the border.
The McLeod Wealth Management group at BMO provides registered Portfolio Manager and discretionary investment management services in both Canada and the U.S.
today to learn more about working with a cross-border team.