Moving to the U.S.: What to do With Your Canadian Investments

If you’re wondering how to move to the U.S. from Canada and have investments in Canada, it’s worth reviewing your Canadian investments with an investment or tax professional before you leave the country. Moving to the U.S. from Canada introduces some tax complexities. Still, the right advice can help ensure your investments are structured and reported appropriately and set up in the most tax-efficient manner.

Non-registered accounts in Canada

If you end your Canadian residency upon moving to the U.S., you are deemed to have disposed of (i.e., sold) your non-registered assets at their fair market value (FMV) and reacquired them at the same FMV, with some exceptions. 

If these assets have increased in value, this may trigger a capital gains tax, commonly called “departure tax.” This may result in a tax obligation even though no actual sale has occurred. On the other hand, if the deemed sale results in a net capital loss, you may be able to use this loss to offset capital gains from the previous three years or carry it forward indefinitely.

As there is some complexity and nuance regarding your Canadian non-registered accounts, it’s best to contact your financial advisor to discuss any steps you need to take, including any trading restrictions and documentation requirements. 

Because departure tax applies on the day you cease to be a Canadian resident for tax purposes, your non-registered accounts should be some of the first ones you look at when planning out your finances before your move.

Canadian mutual funds in non-registered accounts

Due to Canadian securities law, Canadian mutual fund companies cannot sell domestic mutual funds to residents in the U.S. If you already own Canadian-based mutual funds, you may not need to sell them; however, some fund companies may require you to redeem them. Remember that even if you don’t sell your funds, the money may be subject to departure tax when you leave the country.

Because there are some very specific — and complicated — rules around U.S. residents purchasing or owning foreign investments (which can have U.S. tax consequences), it’s best to review your investments with a qualified cross-border advisor who can advise you on what to do with these assets.

Registered accounts in Canada

You don’t need to close a registered account when you leave. If you choose to do so, the closure may trigger income tax, except for a TFSA. Here’s what happens to your registered accounts when you move from Canada to the U.S.

Tax-Free Savings Accounts (TFSAs)

When you move to the U.S., you are allowed to keep your TFSA. Assets in your TFSA are not subject to departure tax, and earnings in the account, as well as withdrawals, will still be tax-free for Canadian tax purposes. However, you will not be allowed to contribute to your TFSA while you’re in the U.S.; no contribution room will accrue while you are a non-resident of Canada. 

Also, the tax-free status does not apply for U.S. income tax purposes, and if your TFSA is considered a foreign trust, you will need to report all income earned in the plan in addition to the filing requirements.

Registered Retirement Savings Plans (RRSPs)

You can continue contributing to your RRSP if you have the contribution room, although you can’t deduct the contribution from your U.S. return. So, it may not make sense to make contributions to the plan after you cease Canadian residency.

Although you can continue to enjoy tax-deferred growth for Canadian tax purposes, a tax deferral is not automatic for U.S. tax purposes, as income earned is typically taxable annually in the U.S. The Canada-U.S. Tax Treaty allows you to make an election annually to defer the tax on this income for U.S. federal tax purposes until a withdrawal is made. However, as some states may not respect this election, it is important to confirm with your tax advisor the tax treatment in the U.S. state you will reside.

If you decide to withdraw from your RRSP after you leave Canada, the withdrawal will be subject to a 25% Canadian withholding tax and may be subject to U.S. income tax as well. Generally, your plan has a tax basis when you move to the U.S. based on contributions made to the plan. 

Speak to your tax professional about optimizing your U.S. tax exposure.

Registered Retirement Income Funds (RRIFs)

As with an RRSP, you’re not required to deregister your RRIF upon leaving Canada, and you can keep the plan intact. Much of the same planning and tax issues as for your RRSP will apply to your RRIF. Therefore, it may be best to talk to a cross-border tax expert to understand your tax liabilities before making any decisions about your RRIF.

As a result of the Canada-U.S. Tax Treaty, withdrawals from your RRIF as a resident of the U.S. may be subject to a reduced Canadian non-resident withholding tax rate of 15%, depending on the amount of the payments.

Taking care of your Canadian investments before you leave for the U.S. is an important step to help ensure your financial plan continues to work hard for you and your future. While the information above provides important factors to consider, it may be helpful to review your investments with a cross-border financial expert who can help you make the most of your money on both sides of the border.

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