US investment accounts while moving to canada

[mayple]

If you have plans of moving back to USA within 3 or 4yrs , i was suggested not to touch anything and leave them as is because its really complicated to report in taxes and also it would be an issue if anything is missed by any chance. The CA i have reached out to told me not to do investments into stocks or mutual funds other than buying any houses something like that. But i am still wanting to take a second opinion as many people have done this before but not sure if they had any issues returning back or during their GC process!

Yeah, that is what I'm trying to figure out as well. Many folks are in Canada temporarily for whatever reason, and may move back to the US in the near future. In that case, it may be best financial strategy to be able to keep these accounts active/maintain them as-is. Based on my research so far, here's what I've gathered/understood:
1. US brokerage firms (e.g. Schwab, Fidelity etc.) require a US address on file in order for you to be able to keep the account active. That is the only way they can continue to keep offering services. This requirement is due to the enforcement of a law called FATCA. The law has been more forcefully enforced since 2020, and increases compliance requirements for the brokerage firms if they offer services to non-US residents (i.e. someone with a US address on file and ties to the US). Most big brokerage firms I've confirmed with will restrict your accounts once you update your address to a non-US address, limiting your access to liquidation only (i.e. selling only). No investments will be allowed to be made (i.e. no buying). You can regain access once you're able to put a US address back on (presumably once you move back).

2. With respect to CRA and IRS, they are only concerned with correct taxes being filed. So, should you decide to maintain the accounts, make sure to file taxes appropriately.

3. A tricky part here that I don't fully understand is something to do with cost basis of your foreign investments when you become a Canadian tax resident. Basically your cost basis (which determines your capital gains/loss) for Canadian taxes is, in my understanding (I'm not 100% sure), is the fair market value of your investments from the day you become a Canadian tax resident. This basically increases some complexity in Canadian taxes versus US taxes (if you have to file both), since your cost basis for capital gains/loss would be diff.

 

[swan0206]

Yeah, that is what I'm trying to figure out as well. Many folks are in Canada temporarily for whatever reason, and may move back to the US in the near future. In that case, it may be best financial strategy to be able to keep these accounts active/maintain them as-is. Based on my research so far, here's what I've gathered/understood:
1. US brokerage firms (e.g. Schwab, Fidelity etc.) require a US address on file in order for you to be able to keep the account active. That is the only way they can continue to keep offering services. This requirement is due to the enforcement of a law called FATCA. The law has been more forcefully enforced since 2020, and increases compliance requirements for the brokerage firms if they offer services to non-US residents (i.e. someone with a US address on file and ties to the US). Most big brokerage firms I've confirmed with will restrict your accounts once you update your address to a non-US address, limiting your access to liquidation only (i.e. selling only). No investments will be allowed to be made (i.e. no buying). You can regain access once you're able to put a US address back on (presumably once you move back).

2. With respect to CRA and IRS, they are only concerned with correct taxes being filed. So, should you decide to maintain the accounts, make sure to file taxes appropriately.

3. A tricky part here that I don't fully understand is something to do with cost basis of your foreign investments when you become a Canadian tax resident. Basically your cost basis (which determines your capital gains/loss) for Canadian taxes is, in my understanding (I'm not 100% sure), is the fair market value of your investments from the day you become a Canadian tax resident. This basically increases some complexity in Canadian taxes versus US taxes (if you have to file both), since your cost basis for capital gains/loss would be diff.

Your analysis is right. Generally the complex part itself is that if you are working for a US employer and getting paid in USD and report taxes to US and Canada they directly mention we are going to get an audit for sure like 70%. Now, if we have to include our investments as well which has to be reported to both the countries is pretty tough even for CA’s and literally we wouldnt even have clue if some mistake was unintentionally made by them and audit appears related to that which might also delay our Canadian citizenship as well was my concern. He mentioned that compared to Canada, US has a very detailed scrutiny when reporting foreign income(he told me this when i did let him know when i want to continue my ties with US after a 3yr period.) Otherwise, it wouldnt be a big of a problem is his suggestion.

2)What i have realized is that everyones situation is different. It boils down to the fact that most of us are unware of these rules and take our own decisions (like i did) and end up repenting later. Whatever plans you have needs to be discussed in detailed with the tax consultants. In my case, i haven’t mentioned him that i have plans to go back after 3yrs or so intially, so he was like fill in my RRSP accounts with full limit. Later, when i told him my plan, he said better not to put anything in RRSP for 3yrs, it doesnt make any sense.


ps: he also suggested me to close all the brokerage accounts if i have opened any here in Canada and be calm till you go back. Just have bank accounts thats it!

 

[mayple]

Your analysis is right. Generally the complex part itself is that if you are working for a US employer and getting paid in USD and report taxes to US and Canada they directly mention we are going to get an audit for sure like 70%. Now, if we have to include our investments as well which has to be reported to both the countries is pretty tough even for CA’s and literally we wouldnt even have clue if some mistake was unintentionally made by them and audit appears related to that which might also delay our Canadian citizenship as well was my concern. He mentioned that compared to Canada, US has a very detailed scrutiny when reporting foreign income(he told me this when i did let him know when i want to continue my ties with US after a 3yr period.) Otherwise, it wouldnt be a big of a problem is his suggestion.

I'm not sure if you'd "definitely" get an audit. But sure it can happen. Audit on taxation will not necessarily delay or impact your citizenship, unless there is an irregularity with your filings that require you to re-submit the taxes. The fact that you're, in all honesty, filing your taxes as required is an indication of your good faith intention to be compliant with tax laws. Errors vs omission are two different things. Omission is more serious than an error. If you chose to omit reporting your full financial position, that can be problematic. Anyway, all of that has to do with CRA. Typically the CRA will request your US transcripts as part of the audit. So make sure to be accurate and objective (i.e. report everything as per tax law requirements)

I'm not sure what you mean by IRA's detailed scrutiny on foreign income. Unless you're earning in Canada (wages or investment income) as well, there won't be any foreign income for US reporting.

 

[swan0206]

I'm not sure what you mean by IRA's detailed scrutiny on foreign income. Unless you're earning in Canada (wages or investment income) as well, there won't be any foreign income for US reporting.

He is mainly concerned about trading stocks here. I am partly not clear why he seperately mentioned that and not to do that, which is why i wanted to have a second opinion to know what issues or complexities it would bring in.

 

[mayple]

He is mainly concerned about trading stocks here. I am partly not clear why he seperately mentioned that and not to do that, which is why i wanted to have a second opinion to know what issues or complexities it would bring in.

Right. I believe stock trading through a US brokerage when you're no longer a US resident has to do with US law. And its not as straightforward e.g. Charles Schwab offers an international account for people who are residents in certain countries where they can freely trade most but not all investments. Unfortunately, Canada is not on that list of countries, so if you move to Canada permanently, then your US brokerage account has to be either closed or at a minimum will only be allowed for selling/liquidation. If you chose to freeze it (i.e. liquidation state only), your existing investments can stay as is and can still keep earning dividends/distributions etc. But if you're interested in further investing your savings/money, you won't be able to do that through a US stock brokerage (so long as you're a non-US resident), but will have to open up a Canadian stock brokerage account and invest via that. If you do that, then ofcourse you'll have to report both your investment income from US stock brokerage AND you investment income (dividends, distributions, gains/losses) from your Canadian account on your CRA forms.

 

[swan0206]

but will have to open up a Canadian stock brokerage account and invest via that. If you do that, then ofcourse you'll have to report both your investment income from US stock brokerage AND you investment income (dividends, distributions, gains/losses) from your Canadian account on your CRA forms.

Yes, he was mentioning about the Canadian brokerage account only. dunno why. I never had an brokerage back in US though. I had a Robinhood account but never actually done any trading.

 

[mayple]

Yes, he was mentioning about the Canadian brokerage account only. dunno why. I never had an brokerage back in US though. I had a Robinhood account but never actually done any trading.

Robinhood account would be considered a trading account. But if you've never used it and have no investments, then you've got nothing to worry about.

 

[swan0206]

Robinhood account would be considered a trading account. But if you've never used it and have no investments, then you've got nothing to worry about.

Let me know if you get to find out more info on this and your decision on what to do next with your investment accounts.
Thanks.