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. If you do have a sponsor you may be able to obtain Canadian permanent residency. Your PR status would be similar to what we would consider a Canadian Green Card.

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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.

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.

 

18 COMMENTS

  1. I would like to figure out and discuss filing “cross border” taxes for the U.S. and Canada. I am seeking to a hire a firm to complete my “cross border” individual tax forms for tax year 2018. I moved with my family from the U.S. to Ontario in July 2018, and will need to file Canadian taxes, U.S. Federal taxes, and possibly North Carolina State taxes; and I would like to receive a quote for completing all of the necessary tax forms.

    My family includes me my wife , and my daughter. We are all U.S. citizens. I have a Canadian Work permit and obtained employment as a Social Worker. Shehas a Canadian Study Permit and began a graduate program at Ontario August 2018. Our Canadian Permits are valid for 3 years until August 2021. We have been physically present and resided in Ontario since July 2018, except for a few days. We need help to determine our residency status for tax purposes, since we are not currently permanent residents of Canada.

    For U.S. taxes, we do not have any earned income in the U.S. for 2018. We have investment income from U.S. banks and mutual fund companies, including interest, dividends and capital gains. Based on my current (limited) understanding; I would anticipate having to file Form 1040 (married filing jointly) with Schedule B (Interest and Ordinary Dividends), Schedule D (Capital Gains and Losses), Form 8949 (Sales and Other Dispositions of Capital Assets), Schedule 8812 (Child Tax Credit), Form 8889 (Health Savings Account, Distribution), Form 8606 (Nondeductible IRAs, Conversion from Traditional to Roth IRA), Form 8962 (Premium Tax Credit, ACA Health Insurance), and Form 2441 (Child and Dependent Care Expenses). We have some savings in Canadian banks, and we moved some U.S. equity assets from the U.S. to Canada (in-kind transfer), and may have to file Form 8938 (Statement of Specified Foreign Financial Assets).

    We do not own any property or have any debt/loan/mortgage, and would plan to take the Standard Deduction (No itemized deductions). Subject to your recommendation, we would probably not take the Foreign Earned Income Exclusion (FEIE) and instead claim a Foreign Tax Credit (Form 1116).
    I know very little about Canadian taxation. Both I have earned income from employment in Canada and will receive T4 forms. We would anticipate having to file Schedule 1, T1 General, ON428, Schedule 11 (Tuition), Form T1135 (Foreign Assets Statement), and Form T778 (Child Care Expense Deduction). Since moving to Canada, we have earned dividends and capital gains on our U.S. investments and may need Schedule 3 (Dividends from U.S. investments) and Schedule 4 (Capital Gains from U.S. Investments). We would be interested to learn more about the possibility of transferring some tuition costs (Schedule 2) and “income splitting”. We haven’t made any contributions (“Canadian Contributions”) or withdrawals from U.S. retirement accounts (Roth or Traditional), and we would like help making a “one-time treaty election” to make our Roth IRA accounts exempt from Canadian tax.

  2. So, I’m an American, wanting to work and live in Toronto. This was a response to my question about getting a work permit:

    “In order to acquire a work permit you would need to find an employer willing to do a labor market impact assessment for you and we unfortunately do not assist in the job search.

    This is an application they would need to do before you apply for a work permit proving that they tried to hire a Canadian but could not; they would need to advertise for at least one month in 3 different sources, justify after the ads why they want to hire you over any of the Canadian applicants, pay a government fee of $1000, and they would need to wait the 4-6 months it takes to receive a decision on this before you can apply for a work permit. ”

    Are there why Canadian attorneys or immigration specialists in the group ( or other) that can tell me how accurate this is? It’s very disappointing of it’s true.

  3. Hi Phil

    We (my wife and I) have lived in Seattle for 20 years and are now getting close to moving back to Victoria. We are both Canadian and US citizens. We have saved a fair amount in our 401k and IRA plans and are wondering if we need to plan for anything before moving backup.

    We have friends that moved up a few years ago that used the wrong firm and everything got complicated very quick. They are still working through the problems right now.

    let us know if we need to plan for anything and we’ll be in touch.

    Hector

  4. Philip,
    A United States citizen, I moved to British Columbia (and Canada) for the first time in 2017. I
    recently filed my United States Federal and (US State of prior residence) taxes and purchased the
    turbo tax software to attempt to file for myself in Canada. I surrender, at least for this first
    year.

    In the United States for 2017, I had full‐time employment and a separate business (operating simply
    under my name) and the business generated tax loss in the context of my US Federal return. In
    Canada for 2017, I was only a full‐time student and had no employment in Canada.

    Would you be able to assist me in preparing my 2017 Canadian returns? Are you located in Victoria?
    (I am now on Salt Spring Island and can travel to Vancouver Island easily, if appropriate. Thank
    you for your consideration.
    Please advise.

  5. Hello Phil,
    My wife (a U.S. citizen, landed immigrant in Canada) works from home and lives here in Canada. She is employed by a U.S. company and travels to her office there once a month for a week at a time. But for the majority of her time she works from her home office here in Canada. She pays her taxes to the CRA and is up to date but we are behind in keeping up with her tax returns to the IRS since 2013 to show employment income and taxes paid.

    We still own a rental property in the US and we have been reporting that income to the CRA as well.
    Could you help us catch up with this, and give an estimate of what the fees would be to get her caught up?

  6. I moved up last jan and now my fidelity broker is telling me I can’t keep my ira and stock account with them in seattle. I ask around locally and no one seems to be able to hold ira accounts although they can transfer up my stocks. any other options?

    I’m also expecting a rather large inheritance from my grandfather in the next few years. If i’m still living in canada will this pose a problem?

    Jamie

  7. we currently live in Florida and have assets spread throughout the world. We are considering moving to Canada and have narrowed it down to Vancouver Island. How does Canada view international investments? Would it be more beneficial to consolidate investments before or after moving to Canada? I feel like we need to simply matters as we get deeper into retirement.

  8. 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.

  9. 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?

  10. 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

  11. 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

  12. 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

  13. 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?

  14. 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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