Saving Tax on moving your investments to Canada from the US. Here’s a small strategy that some people don’t take advantage of when trying to save on overall tax from a portfolio standpoint. If we imagine a situation where an individual has a non-registered investment account in the US and a non-registered investment account in Canada, this individual receives dividends from their US account, and let’s assume that this individual is not a US citizen, but they’ve had this account in the US for some time. The dividends that they’ve received from this account, will attract an immediate 15% US tax and also will be taxed in Canada at regular Canadian rates converted at appropriate average exchange rates.
Now if we assume a tax payer’s marginal bracket of 30% in Canada, they’ll pay 30% tax on that dividend. They’ll get a credit for the 15% that they already paid in the US. So essentially their overall tax is going to be 30%. Now compare that to a portfolio that’s paying out dividends from Canadian companies which wouldn’t be that much different. All this individual would have to do would be move their US money into Canada. So compare that to a portfolio that’s paying out Canadian dividends and in a lot of cases you can earn, assuming you don’t have any other income, you can earn up to $60,000-$70,000 of Canadian source eligible dividends and pay very little tax. So just the savings on moving the money from the US to Canada and reinvesting those funds in the Canadian dividend paying stocks is a significant advantage. In a lot of cases that might save between 20% and 30% of tax that you would normally pay on an annual basis. The same planning applies to capital gains distributions and return of capital distributions in the US that maybe taxed in Canada at full rates.