American Moving to Canada – I Need Help!

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Question

Hi there

I’ve finished my paperwork with my immigration lawyer and we’ll be making the move up to Victoria in early 2018. She told me to ensure I got the advice of an international tax expert to sort out any tax issues I’ll be facing and any tax planning that may be required before the move. I need some help working all this out. I do want to book a consultation, but I have a few specific questions first:

    1. We are trying to sell our house in LA, however it likely won’t sell before we leave. Will we pay Canadian tax on the house if it sells when we are in Canada?
    2. We have investment accounts in the US and we honestly don’t know how to manage these from Canada. Do we leave them here, or do we move them to Canada. Our investment advisor down here is currently looking into our options. He is concerned that he will not be able to hold the accounts if we move to Canada
    3. We will be receiving a relatively large inheritance from my father’s estate sometime in the next 10 years, some of which will go to my kids via a trust. Is there any planning we should look at doing?
    4. We will be working in Canada for the next 15 years. A friend of mine in Vancouver told me to setup an RRSP. Is this sound advice?
    5. My wife will be working at the hospital and I am a IT consultant that will be working remotely from home for some US clients. I also hope to attract new Canadian clients. Is incorporation something I should consider? I understand the negative implications of having an LLC in Canada and have closed down my current LLC
    6. I have some sizable gains in my regular US investment account (AMZN, AAPL, GOOG and NVDA). Should I be thinking of selling these before entering Canada (tied to the question above)
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My apologies for amount of questions, but I wanted to list out my questions before our consultation. Please let me know how to proceed.

Regards

XXXXXX

Answer

Thanks for the email. The questions below are quite detailed so I’ll do my best to outline some general considerations in this email. To gain a more accurate assessment of your financial and tax situation we should connect for an “in office” or phone consultation.

  1. Generally speaking, when you become a Canadian resident the cost basis (ACB) of all your assets increase to the fair market value (FMV) at that particular time (adjusted for any foreign exchange values). For example, if before you moved to Canada you purchased Apple stock for $100 (ACB) and when you moved to Canada the stock was trading at $150 your new ACB for Canadian purposes would be $150. So, if you sold the stock shortly after entering Canada (assuming the stock stayed at $150) you would not have a capital gain on the stock. The same would be true for your house. You won’t pay any Canadian tax on the accumulated gain before entering Canada. You will however pay tax on any increase in value after you enter canada including any change in the USD/CAD foreign exchange rate. Also note that in order to preserve your US principal residence you’ll need to meet the “2 out of the last 5 year” criteria to ensure you don’t pay additional US tax on the eventual sale.
  2. The investments will need some thorough review in order to properly plan. As discussed above the new cost basis (ACB) for your assets will be the fair market value at the date of entry. This revaluation however will not apply to certain assets such as retirement accounts like IRAs and 401ks. It will also be very difficult for you US broker to manage the non-registered accounts legally while you are a Canadian resident. We work with colleagues that can help you manage your cross border investments (we can chat in more detail when we connect). In very simplified terms it often makes sense to consolidate the US non-retirement accounts up in Canada and maintain the US retirement accounts in the US. In limited circumstances it makes sense to transfer accounts like IRAs and 401ks to a Canadian RRSP.
  3. Depending on what type of inheritance you plan on receiving, the financial and tax implications will be different. In most cases it will be a lot easier for you to receive straight cash, however that is not always feasible for the US advisors. The fact that trusts will be setup for the kids is a little concerning considering the potential tax complications. Let’s chat about these implications in more detail.
  4. Contributing to an RRSP can be a great way to save on tax. However unless you have RRSP room accumulated from previous years in Canada you’ll need to spend at least 1 year accumulating available RRSP contribution room in order to move money into an RRSP.
  5. Shutting down the LLC was smart move. We are undergoing significant corporation tax rule changes in Canada and I would be hesitant to advice anyone setup a corporation right now. We should have more detailed rules from the Canadian government soon that will help clarify the corporate tax system going forward.
  6. As discussed above, the gains from those securities earned before entering Canada will not be taxed in Canada if sold subsequent to entering. However their may be some opportunities to sell assets or transfer amounts to a ROTH IRA if specific tax savings are available.
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I hope the information above has been helpful. Please don’t hesitate to contact our reception at 250-381-2400 and they would be glad to arrange a consultation appointment.

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2 COMMENTS

  1. Hi

    I’ll be moving to Canada as well and may setup a corporation while I’m in Canada to buy properties. I’m thinking of buying a condo in Hawaii. Is there anything I should be considering in terms of tax or financing?

    Thanks

    • I guess it really depends on whether it’s being rented out or not and whether you will be buying the property in a Canadian corporation. It’s often easier and more tax efficient to purchase the property personally (versus corporately) as the US corporate tax rates (if you sell at a sizable gain) are currently high.

      That being said, if the US can push through their corporate tax changes this advice may change. Financing can be difficult from Canada, however it does seem like some lenders will allow for financing on foreign property. I’m not too sure about US lenders financing for Canadians on Hawaii properties.

      If you do buy and rent in the US you’ll need to get a US tax ID number and file both a US and Hawaii tax return. Any taxes paid to the State or IRS will be a credit on your Canadian return, so no worry about double tax. Also don’t forget to report the property on your Canadian return form T1135. Perhaps if you send me more details or specific questions I can help in more detail.

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