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Canadians move to the U.S. for many personal and professional reasons. Before making the transition, it’s essential to understand the significant differences in financial planning and investment regulations between the two countries. The following checklist will help you prepare for a successful move.
1. Notify Financial Institutions
Inform your financial institutions, including banks, brokerage firms, and insurance companies, of your new address and residency status in the U.S. This ensures proper handling of your accounts and avoids any disruptions. Establish new relationships in the U.S.
2. Analyze Income Tax Implications
Engage a qualified cross-border tax professional to assess the tax implications of your move. Understanding how your income, assets, and investments will be taxed in both Canada and the U.S. is crucial for avoiding penalties and optimizing your financial strategy. You should also explore strategies to reduce your deemed disposition tax upon exit.
Moving from Canada to the U.S. requires meticulous planning and careful execution. Cross-border tax laws, investment regulations, and financial systems differ significantly, and mistakes in timing or filing can lead to costly penalties. By following this checklist and engaging experienced cross-border professionals, you can ensure a smooth transition and set yourself up for long-term financial success.
- Canadian Exit Tax: File the necessary Canadian tax forms by April 30 following your year of departure. Pay any taxes owed to the Canada Revenue Agency at this time. Make sure to sever your Canadian tax ties to prevent further tax filing obligations in Canada.
- U.S. Tax Filings: File your U.S. tax return by April 15 following your arrival or request an extension. Ensure compliance with foreign account reporting requirements and make sure to include your worldwide income. Federal and state tax laws vary, and each state has different implications for cross-border tax planning. Ensure you understand how your new state’s tax system will impact your financial plan and establish strategies for both pre- and post-relocation tax compliance.
3. Manage Brokerage Accounts
- Canadian Tax Perspective: Non-registered brokerage accounts are “deemed disposed of” upon exiting Canada, meaning their holdings are treated as sold for tax purposes. Capital gains or losses should be reported on your Canadian exit tax return.
- U.S. Tax Perspective: The cost basis of these holdings carries over as a U.S. taxpayer. Consider liquidating certain holdings before your move to eliminate low-basis holdings. Those holdings will be deemed disposed of in Canada so you will be paying capital gains tax on them anyway and selling will not cause any additional tax.
Maintain your Canadian account statements from the year of your move for future U.S. tax filings, and consult a cross-border advisor to manage this transition effectively.
Most Canadian advisors are not licensed or registered to manage accounts for U.S. residents. Likewise, many U.S. advisors lack expertise in managing Canadian dollar-denominated investments. Close non-registered Canadian accounts and transition the proceeds to the U.S., ensuring your new advisor is experienced in both countries.
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