Welcome to part one of a four-part series in which our firm will address some important dynamics of cross-border financial planning. A move to the United States from Canada is not as simple as many individuals and their advisors believe. In fact, there are many sophisticated challenges that must be addressed prior to crossing the 49th parallel. The old adage, “failing to plan is planning to fail” is quite true when discussing cross-border financial planning.
Our first planning topic focuses on the Canadian Departure Tax. This levy is assessed by the Canadian Revenue Agency, or CRA. The CRA taxes assets when an individual or family unit becomes a non-resident of Canada. A deemed disposition or sale of specific assets must occur upon departure. All non-registered or taxable account securities are subject to the departure tax. These include stocks, bonds, mutual funds, ETFs as well as limited and general partnerships. Additionally, certain personal property and non-Canadian real estate are subject to the Departure Tax.
There are some assets that are not subject to the Departure Tax. These include registered accounts, pensions, annuities, Canadian real estate, employee stock option plans, life insurance policies as well as profit-sharing plans. It is important to note that the CRA requires Departure Tax returns to be filed during the year of departure.
Multiple strategies can be employed to lower the Canadian Departure Tax. First, utilization of the Canada-U.S. Tax Treaty can eliminate tax liability through foreign tax credits. Next, non-registered investment accounts often have embedded gains and losses, which can be offset to reduce tax liability. Similarly, capital loss carry-forwards from past years can reduce current tax liability. Another strategy employed is to use the small business capital gains exemption.
Of course, there is no “one size fits all” cross-border financial planning strategy. It is important to partner with a qualified team of tax, legal and investment professionals who specialize in Canadian and United States cross-border transitioning. Stay tuned for part two of the four-part cross-border exit strategy. Please contact Cardinal Point Wealth Management at http://www.cardinalpointwealth.com/US/contactus.html to review your unique situation.