10 Things to Know Before Moving to Canada from the US

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1. US Citizens File Taxes Even When They Are Outside the US

US citizens moving to Canada will still be required to file US taxes even though they no longer reside in the US. Tax filings will be required based upon their US citizenship rather than traditional physical residency.

Not only do US citizens need to continue to file US 1040 income tax returns, they will need to ensure additional foreign reporting forms are completed. Engaging an experienced cross border tax professional will be very important.

2. You Won’t Need to Pay Canadian Tax on Accumulated Gains to Canada

When you become a tax resident of Canada your previous gains accumulated before you entered are protected from Canadian tax. Technically speaking, the adjusted cost basis of your investments and property is increased to the fair market value at the date of your entry.

Proper tax planning is often warranted to ensure investments and real property are sold in a tax efficient manner either before or after entering Canada.

3. You May Not Be Able to Keep Your US Investments While in Canada

Non-residents of the US are not legally allowed to maintain non-registered (non-retirement accounts) accounts in the US. Although, as a US citizen,  you are still required to file US taxes you are considered a non-resident of the US for purposes of opening or maintain a US investment account.

Note however that accounts such as IRAs and 401k can still be maintained by Canadian residents.

Discussing your asset mix and related investment structure with an investment specialist is highly advisable before you enter Canada to ensure you don’t run into any unwanted surprises down the road.

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4. You May Want to Liquidate Some Assets Before you Enter Canada

As discussed above it may be advantageous to liquidate some of your assets before entering Canada. Tax and investment planning before you enter Canada becomes extremely important as you have fewer options once you become a tax resident of Canada.

For example, reviewing principal residence or ROTH IRA strategies before the move can save a significant amount of tax in the future.

5. You May Want to Review Your Investments Before Entering Canada

Having a competent cross border tax and financial planner review your investments before you enter is necessary to ensure all opportunities and pitfalls are considered. Once you become a resident of Canada some planning opportunities become unavailable.

I speak to many newcomers to Canada that have failed to contact a professional before entering the country. At that point their options are greatly reduced. Don’t let this happen to you.

6. You Will be Subject to 2 Different Estate Tax Regimes

Some US Citizens are not aware that although you have left the US, you will still be required to file US tax returns as a Canadian resident. US taxation and reporting is required based on citizenship and not residency.

In addition to regular 1040 income tax returns, US citizens living in Canada are subject to additional foreign reporting requirements such as FBAR forms (reporting of your Canadian and non-US financial accounts). Penalties for late filing of these forms can be as high as $10,000, therefore it is highly advisable that you seek out a knowledgeable tax professional to help you navigate your cross border tax filings.

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7. The US Government Will Want to Know What Canadian Assets You Own

As mentioned above, in addition to regular 1040 returns you will also be required to complete foreign financial account reporting forms to the US Treasury department. The US government likes to keep tight tabs on the assets of its Citizens. It accomplishes this objective by requiring taxpayers outside of the country to file FBAR forms.

Form 114 requires that a taxpayer disclosure the highest balance in all her foreign (foreign to the US) financial accounts. Form 114 and related instructions can be viewed here.

8. Receive Specific Amounts of Income Before Entering Canada

In many cases, depending on the US state from which you are moving, Canadian taxes will be higher than your previously combined Federal and State taxes payable. If you are anticipating receiving a large bonus, retirement allowance or IRA distribution it could be beneficial to receive the income before moving to Canada.

Depending on your current tax rate, planning for such strategies could result in significant tax savings.

9. If Your Spouse is Not a Canadian Citizen They Will Need to Apply for Their Canadian Permanent Residency

The specifics of spousal immigration are beyond the scope of this article, however although the media may lead you to believe that anyone can simply “move to Canada” the rules certainly do not allow for such a move.

Non-US citizens may be eligible for working Visas or permanent residency if they meet certain criteria. Contacting a Canadian immigration lawyer to help with your non-Canadian spouse’s entry status is imperative.

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10. Find a Cross Border Team That Can Work Together

From taxes, investments, immigration and legal issues, moving to Canada can result in many challenges and complexities. Finding a good team consisting of a cross border tax accountant, investment advisor and immigration lawyer is key to a seamless move across the border. For a list of experienced cross border professional please visit our directory here.

 

Do you need help from one of our Cross Border Professionals? Contact us here and we'll reach out shortly.

11 COMMENTS

  1. Hi

    I’ll be moving to Canada next year and I’ll need some help in the tax planning side. I have a few stocks that have appreciated in value significantly that I would like to hold on to, but if I have to pay Canadian tax when I sell I would rather get rid of. Will I have to pay Canadian taxes on these?

    • When you move to Canada, your assets are technically revalued to their fair market value. And the intention here, is that Canada is not going to tax you on any approved gains that you earn before you moved to Canada. But the technicals and the approach to how to manage that move for tax purposes is a lot more complex. So let me give you an example…

      So let’s say, you own Apple’s stock that you purchased for $100 that’s now worth $160 and you’re thinking about moving to Canada. As you enter Canada, so the day you enter Canada for tax purposes, your new cost-basis for these Apple shares will be $160. So if you move to Canada and if you sell the Apple shares immediately, the fair market value proceeds will be $160, your cost basis for Canadian purposes will be $160. So you have 0 gain in Canada. Now you still will, assuming you’re still a US citizen, have a gain in the US of $60. And you’ll pay tax to the US but you certainly will not pay tax on that same gain in Canada. If you have any additional questions about that please let me know.

  2. I’m a US citizen living in Winnipeg and I moved to Canada about 10 years ago. I filed US tax returns on the first year I entered Canada but since then I haven’t filed taxes. My other US citizen and American friends tell me I should have been filing the whole time and I’m getting quite scared. I read on your blog that you could file or catch up late returns to the US and avoid penalties on any late filings. Is this true? My situation should be quite straight forward. I work for a company, I make about $90,000 a year, I have an RRSP, I have a TFSA, I’m not currently married, but I would like to put away some more money for investments. I might also be moving back to the US, so it’s imperative that I get caught up on my late filings so I don’t get stopped at the border. Is this something you can help with?

  3. We just moved to Victoria in the summer and still have assets in the US. We have 2 houses, one of which was our principal residence before moving and the other a rental. Other assets include IRA, small 401k and regular investment account. We are hoping to move most of our assets up to Canada as this will be long-term move.

    Should we have sold our assets before moving up? I’m worried we didn’t get great advice from our US accountant and lawyer.

    Steve

  4. My broker in the US is telling me she can’t handle my account after I move to Canada. Should I close the account before moving up? We’ll be making the full move in February of 2018 to Ottawa.

    Thanks

  5. Hi phil

    I’m moving to Canada from California in early 2018. I’ll be with the same employer and working from home. My wife if from victoria and we’ll be settling down to raise a family.

    I have the option of becoming a self employed contractor or employee paid on a W2 while I’m in Canada. My accountant in the US doesn’t deal with Canadian taxes so I thought I would try you.

    Thanks

    • Hi Rickson

      In most cases it will be much easier to become a contractor of the existing company than to stay no US payroll. Technically speaking, if you were on an employee working in Canada for a US employer they would have had to setup a Canadian payroll account and remit CPP and EI to the Canadian government. It’s definitely worth asking them if they are willing to setup these accounts, however in most cases they are not willing.

      Other items should be considered such as whether you have a matching retirement plan with the company that would not be there under a contractor agreement.

      Hope that helps

  6. I just moved up to Canada and after reading this article I feel like I should have obtained appropriate professional advice. Should I keep my investment accounts and 401k in the US while I maintain a residence in Canada? Will I be double taxed?

  7. Hi there

    My wife is trying to convince me to move to Canada (she’s a Canadian citizen) and although it feels quite overwhelming to leave my hometown it looks like it will happen sometime next year.

    My main retirement asset is my IRA and I wonder if I can transfer it to Canada or should I leave it in the US. My broker is not sure if she can keep me as a client, but she’ll be getting confirmation of this fact soon.

    Thanks for any help you can provide

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