Tax and investment planning guidance while moving to Canada from US

[daydreaming24x7]

I have been living in US for past twelve years with my wife on H-1B. We recently received Canadian PR and are planning to move to Canada later this year. Through employment we have some funds in 401K and IRA, along with some real estate investment. From what I read, the US non-resident taxation rules for investments/ retirement accounts are pretty stringent for someone living in Canada. I have contacted some financial advisers having expertise with cross border planning but they are mostly focused on retirees or individuals with high net worth (> 1.5 m). I am a nobody for them .
We would like to keep our investments in US intact, at the same time don't want to get slammed with high taxes for not following proper procedures. For those who are/were in similar situation, what did you do? Who did you use for tax planning? Any help is appreciated.

 

[kunal1364]

did you get any solution for your US investments?

 

[jclarke99]

The short answer is that Canada treats tax-deferred retirement accounts in a similar manner as the U.S. No tax consequences until you withdraw the funds. At that point, you'll presumably report such withdrawals to both the U.S. and Canada, end up paying the higher of the two country taxes (presumably Canada), and make use of the tax credit so that you're not paying double taxes. I can't speak to your real estate investments (however, to make things less complicated, you might consider selling such real estate investments prior to your move to Canada).

 

[Totoro1661]

I have been living in US for past twelve years with my wife on H-1B. We recently received Canadian PR and are planning to move to Canada later this year. Through employment we have some funds in 401K and IRA, along with some real estate investment. From what I read, the US non-resident taxation rules for investments/ retirement accounts are pretty stringent for someone living in Canada. I have contacted some financial advisers having expertise with cross border planning but they are mostly focused on retirees or individuals with high net worth (> 1.5 m). I am a nobody for them .
We would like to keep our investments in US intact, at the same time don't want to get slammed with high taxes for not following proper procedures. For those who are/were in similar situation, what did you do? Who did you use for tax planning? Any help is appreciated.

Hi there,

The tax implications of transferring a 401(k) / IRA to Canada are different depending on which type of IRA the taxpayer is holding.

Traditional IRA
A traditional IRA is considered a “foreign retirement arrangement” and the US tax treatment is honored in Canada. The income earned within an IRA is not taxable, but when you withdraw, the withdrawals are taxable. You will likely need to consult with a cross-border accountant to prepare your tax forms in a way that you won't be taxed on the same withdrawals in both countries

The funds inside a 401(k) and traditional IRA can also be rolled over into a Canadian RRSP, many rules are applicable so you should get clarifications on this as well.

ROTH IRA
Income from a ROTH IRA can be included in income for Canadian tax purposes. However, if you make a timely election, you can get around this problem easily under the U.S. – Canada Tax Treaty.


Real Estate
Your real estate should be evaluated when you immigrate to Canada. The appreciation in values between when you immigrate and when you dispose the properties will be taxable when you sell them. Also rental income will be subject to income tax in Canada. Again, the only way to avoid double taxation is to file your tax returns correctly under the tax treaty.

Best!
Mai

 

[IndianBos]

I have been living in US for past twelve years with my wife on H-1B. We recently received Canadian PR and are planning to move to Canada later this year. Through employment we have some funds in 401K and IRA, along with some real estate investment. From what I read, the US non-resident taxation rules for investments/ retirement accounts are pretty stringent for someone living in Canada. I have contacted some financial advisers having expertise with cross border planning but they are mostly focused on retirees or individuals with high net worth (> 1.5 m). I am a nobody for them .
We would like to keep our investments in US intact, at the same time don't want to get slammed with high taxes for not following proper procedures. For those who are/were in similar situation, what did you do? Who did you use for tax planning? Any help is appreciated.

We moved after spending 10 years in the US. This is what I did:
401K - You can convert into Roth IRA and self-manage the investments from here. You might need a US address and phone number for those accounts.
Real Estate Investments - I don't have one, but I know a lot of people who do. They didn't sell their investments and manage it from here. Just hire a tax-advisor/CPA when you file you taxes and they will manage it for you.

 

[ajj123]

Hi All, can anyone recommend a cross border accountant or a financial planner?
My husband and I moved from USA to Canada. Same story as above, want to protect our investments.

 

[jclarke99]

Hi All, can anyone recommend a cross border accountant or a financial planner?
My husband and I moved from USA to Canada. Same story as above, want to protect our investments.

You might start here https://philhogan.com/, I don't think that Mr. Hogan is taking new clients, but he might be able to provide referrals.
Be aware that most U.S. brokerage accounts (e.g., Fidelity, Vanguard...) won't let you hold a U.S. brokerage account if you have a Canadian address. My solution was to move my IRA accounts to a Schwab One International account, and I moved my taxable brokerage account to an Interactive Brokerage Universal Account. Both of these accounts allow for a Canadian home address.

 

[Kimbear]

We are in a similar boat and we also sold our house in the USA. I just had a quote from a cross border tax accountant for over 1200$ to do my us / can returns plus and FBAR. i'm freaking out about that price! Normally i do my own taxes, but trying to figure out how to declare us foreign income for 5 months and all the deductions and where to put them on the Canadian return has me frazzled. Turbotax is not playing nice, i know its last years version but i wanted to play with it in advance to see if i could figure it out before january. and the program is trying to tell me we have to pay 14k to Canada! my husband only made like 18k USD, but he was told he had to cash in his 403b retirement plan which was after the us tax penalty etc 40k.

Also I have no idea how to do my taxes with him on it etc. We are still waiting for INLAND PR and OWP. We applied in August. This is so confusing and nerve wracking

 

[jclarke99]

We are in a similar boat and we also sold our house in the USA. I just had a quote from a cross border tax accountant for over 1200$ to do my us / can returns plus and FBAR. i'm freaking out about that price! Normally i do my own taxes, but trying to figure out how to declare us foreign income for 5 months and all the deductions and where to put them on the Canadian return has me frazzled. Turbotax is not playing nice, i know its last years version but i wanted to play with it in advance to see if i could figure it out before january. and the program is trying to tell me we have to pay 14k to Canada! my husband only made like 18k USD, but he was told he had to cash in his 403b retirement plan which was after the us tax penalty etc 40k.

Also I have no idea how to do my taxes with him on it etc. We are still waiting for INLAND PR and OWP. We applied in August. This is so confusing and nerve wracking

I feel your pain. Sounds like the biggest tax event is the cashing in of the 403b. You mentioned the penalty, and you probably know that the distribution is treated as ordinary income. There's no getting around the taxes for that. But you don't mention who is the Canadian citizen (you or your husband) and who is applying for PR. If your husband is the applicant and he has not yet received PR and he has already cashed in his 403b, then that taxable event is just for the U.S. (as far as I know). You mention that you have an inland PR application and your husband made 18k USD. Was he residing in Canada for that income? If so, then that might get tricky.

Options - it may well be worth paying the $1200 for the cross-border tax accountant for the first year. The first year is particularly tricky given the complexities of a partial year of taxes for the new PR. You can also consider this an investment, as you'll have a template to refer to if you want to do taxes yourself for future years.

If you want to forge ahead with doing taxes yourself, be aware that there are limitations of TurboTax in your circumstance. There may be better tax preparation software available for such cross-border tax preparation (check out this link https://brighttax.com/blog/best-tax-software-us-expats/)

You'll also need to be knowledgeable (and not just rely on the software) about some potentially tricky matters. You already mention FBAR - so you're aware of this. Some online links that I've found helpful include...
https://www.finiki.org/wiki/Cross-border_and_expatriate_issues
https://philhogan.com/how-to-file-us-tax-returns-in-canada/
https://es-cpas.com/canadian-income-tax/u-s-income-tax-u-s-citizens-living-in-canada/

There are also books on this topic, such as...
Taxation of Americans in Canada (Dale Walters)
Cross Border Taxes (Cori Carl)

Good luck!

 

[Kimbear]

I feel your pain. Sounds like the biggest tax event is the cashing in of the 403b. You mentioned the penalty, and you probably know that the distribution is treated as ordinary income. There's no getting around the taxes for that. But you don't mention who is the Canadian citizen (you or your husband) and who is applying for PR. If your husband is the applicant and he has not yet received PR and he has already cashed in his 403b, then that taxable event is just for the U.S. (as far as I know). You mention that you have an inland PR application and your husband made 18k USD. Was he residing in Canada for that income? If so, then that might get tricky.

Options - it may well be worth paying the $1200 for the cross-border tax accountant for the first year. The first year is particularly tricky given the complexities of a partial year of taxes for the new PR. You can also consider this an investment, as you'll have a template to refer to if you want to do taxes yourself for future years.

If you want to forge ahead with doing taxes yourself, be aware that there are limitations of TurboTax in your circumstance. There may be better tax preparation software available for such cross-border tax preparation (check out this link https://brighttax.com/blog/best-tax-software-us-expats/)

You'll also need to be knowledgeable (and not just rely on the software) about some potentially tricky matters. You already mention FBAR - so you're aware of this. Some online links that I've found helpful include...
https://www.finiki.org/wiki/Cross-border_and_expatriate_issues
https://philhogan.com/how-to-file-us-tax-returns-in-canada/
https://es-cpas.com/canadian-income-tax/u-s-income-tax-u-s-citizens-living-in-canada/

There are also books on this topic, such as...
Taxation of Americans in Canada (Dale Walters)
Cross Border Taxes (Cori Carl)

Good luck!

Indeed the 403b was the pain, but we couldn't keep it there or do anything with it as my husband worked for a non profit and he is the us citizen. when he cashed it in we paid 20% off the top to the IRS. He was workign full time while i was at home with our daughter, i'm the Canadian.

I figured out what the FBAR is at least and how to do it. so i think i've saved myself the 200$ there. I mean i know how to do taxes, i'm just not sure where my husband stands and both countries residency tests say he is resident! but i think i can file for him as a deemed non resident. governments sure dont make this easy eh?! lol.

Investing the money is difficult, i got my usa citizenship so i'm a dualie now. and USA only recognizes RRSP's. not resp or tfsa, i'd still pay tax on those in the usa. I may very well just have someone do the Canadian one like you said, and next year i'll have something to look at if i want to do it myself..

Thanks for those links!

 

[Ponga]

[Well aware that this is a reply to an old post; couldn't find one more recent for a U.S. citizen]

I figured out what the FBAR is at least and how to do it. so i think i've saved myself the 200$ there. I mean i know how to do taxes, i'm just not sure where my husband stands and both countries residency tests say he is resident! but i think i can file for him as a deemed non resident. governments sure dont make this easy eh?! lol.

Investing the money is difficult, i got my usa citizenship so i'm a dualie now. and USA only recognizes RRSP's. not resp or tfsa, i'd still pay tax on those in the usa. I may very well just have someone do the Canadian one like you said, and next year i'll have something to look at if i want to do it myself..

Did you interpret the rule to be that you must report if your combined balance(s) exceeds $10k* or more at any time throughout the year...even if on different days? THAT'S the part that seems crazy to me! For example, if you have an individual checking account and are also on your spouse's account...If you deposit (or have a balance of) $5001* dollars in your primary account...then transfer that amount to your joint account at anytime after that (within the same calendar year)...you suddenly have $10,002* that must be reported, even though it's the same $5001* that YOU started with, just moved between accounts. The key word is the `aggregate' amount/balance throughout the year...right?
[*=USD conversion]