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As you establish your life south of the border, there are several ways to build a prosperous future for yourself and your family. Discover planning, investing and education strategies that can help set you up for long-term success.

Moving to the U.S. From Canada: The Good, the Bad and the Taxes. Part 4: Looking Ahead: Planning Your Future as a US Resident

For Canadians making the move to the U.S., getting settled takes time.

As you plan your future in the U.S. here are some tips that can help you make smart financial decisions and build a life south of the border.

1. Buying a Home in the U.S. Isn’t as Hard as It Used to Be.

Many Canadians still believe the only way to buy a U.S. property is to pay for it fully in cash. But the reality is that Canadians can finance a U.S. property — and in fact it can be a cost-effective way to buy a U.S. home with a down payment of 20% or more.

The key is to find a financial partner who will use your Canadian credit history to help you secure your loan. Cross-border mortgage services are available, in some cases allowing you to use both your Canadian credit history and banking relationship to secure a U.S. mortgage. The right financial partner can also walk you through the differences between Canadian and U.S. mortgages and guide you throughout the process — from getting a pre-qualification (to help you determine your budget), to arranging for appraisals and title search, through to closing the purchase on your new U.S. property.

Because of the differences that exist between securing a mortgage in the U.S. versus Canada, it’s a good idea to give yourself plenty of time to go through the home buying process. For example, while applying for and securing a mortgage in Canada can take just a few days, this process is typically 45-60 days in the U.S.

2. Investing in the U.S. Goes Beyond Saving Your U.S. Dollars.

Once you move to the U.S., it’s important to keep up an investment plan that is properly designed, balanced and diversified, that’s built with your long-term goals in mind. Your financial objectives may have shifted since moving to the U.S., so you’ll want your investment plan to shift along with you. If you’re leaving investments in Canada (as many Canadians do), these investments ideally need to be integrated into your overall plan.

Working with a cross-border advisor will help ensure your investments are aligned with your goals, and that you’re taking advantage of U.S. investment opportunities.

3. You’ll Have to File Your Taxes Somewhere.

You’re a Canadian citizen living in the U.S., so which country will you need to pay taxes in? Will you have a tax liability in both? This is a common question among Canadians living across the border. The Canadian tax system is based on your residency status. Regardless of your Canadian citizenship, you may potentially cease Canadian residency for tax purposes, if you sever most if not all of your ties to Canada. This could mean selling or renting out your primary residence, and having your spouse and children leave Canada with you or soon after. As a non-resident of Canada you will pay tax on Canadian source income only.

You’ll be treated as a resident of the U.S. for tax purposes if you meet the Lawful Permanent Resident Test (which generally means you have a green card) or you pass the Substantial Presence Test. Determining whether you pass the Substantial Presence Test involves a fairly complicated calculation. Cross-border legal advisors Altro Levy have an online calculator that will tell you, based on the amount of time you have spent in the U.S. over the last three years, whether you are in fact considered a U.S. resident for tax purposes.

If you leave Canada partway through the year and are considered to cease Canadian residency, you will likely have to file a resident Canadian tax return, reporting your worldwide income for the portion of the year that you were a resident of Canada. This is usually called your “part-year” tax return. You will be deemed to have disposed of many if not all of your assets on the date you cease Canadian residency. Accrued gains will be included in your worldwide income. If you are not considered to cease Canadian residency, you will continue to file income tax returns in Canada pretty much as you have before your move.

If you’re considered a resident of the U.S., you will be taxed on worldwide income in the same way U.S. citizens are, and will be required to file a tax return by April 15th of each year (or the next business day). The Canada – U.S. Tax Treaty helps to reduce double taxation.

4. Cross-Border Estate Planning Is Something to Think About.

The U.S. has many things Canada doesn’t have – tropical beaches, Trader Joe’s, Sonic Burger… and Estate Tax. U.S. Estate Tax is a tax applied to the value of your assets after you pass away, and depending on the value of your estate, it could add up to a significant amount of money your estate could be responsible for paying out.

It is a good idea to figure out what your exposure is to U.S. Estate Tax and to calculate how much you might owe – but this isn’t always an easy task. U.S. Estate Tax is based on U.S. citizenship and domicile status. Canadians who establish domicile in the U.S. (which in order to establish you must be present in the U.S. with the intention to remain in the U.S. indefinitely) are exposed to U.S. estate tax on their worldwide assets.

Canadians living in Canada, and those who move to the U.S. but do not establish domicile in the U.S. are subject to U.S. Estate Tax on U.S. situs property only (being property considered to have a U.S. connection or location e.g. stock in a U.S. corporation, U.S. retirement plans and U.S. real estate).

This Estate Tax calculator can help you determine where you stand. And if you find that you will be required to pay estate tax, there are strategies you can implement to reduce or avoid the amount you owe. It is essential to work with a cross-border professional who can review your estate and tax planning options with you, and determine the right opportunities for you and your family.

In addition to estate tax, you may need to update your Will and Power of Attorney documents or have separate ones in the U.S. to reflect your change in residency status. In the event your Canadian residency status does not change and you are a non-resident of the U.S., you may need a separate Will and Power of Attorney to deal with certain assets located in the U.S. It’s a good idea to have your Will and Power of Attorney documents reviewed by a U.S. legal advisor to ensure their validity in the U.S., as they may need to be revised or replaced to take your move into account.

5. You Can Still Save for Your Children’s Education.

Your tax advisor may recommend that you collapse your RESP when you leave Canada – due to the potentially punitive U.S. taxation that applies to a subscriber who is a U.S. resident. However, you may still have an opportunity to save for your child’s education.

Many states offer 529 college savings plans, also known as Qualified Tuition Programs (QTP). Similar to an RESP, you invest after-tax dollars into the plan. The difference is that you can withdraw the funds (and any investment income you’ve earned) tax-free for use toward eligible education expenses, such as college tuition and books. Each state’s plan is different, with a range of investment options, contribution limits and fees.

You may be able to save for your child’s education through a Roth IRA. While this is best known as a tax-advantaged retirement savings account, it can also be used for college savings after five years. This dual-purpose feature makes this account flexible: If you’re child doesn’t go to college, you can still use the funds for your retirement!

A Coverdell ESA is another tax-advantaged way to save for college in the U.S. Unlike a 529; however, Coverdell ESAs can be used to cover any educational expenses, including K-12 costs such as private school tuition.

There are a number of other ways to save for your child’s education, including pre-paid tuition plans and custodial accounts. Speak with your advisor about which way is best for you. When making these decisions its best to consider whether you and your children will be returning to Canada, as there may be negative Canadian tax implications to consider for Canadian residents owning these plans.

Building your future in the U.S. will be something you continue throughout your lifetime, so it’s always a great idea to work with a cross-border financial advisor to ensure you’re making the most of your money, reducing your tax liability and ensuring you’re following the rules set up by the CRA and IRS. And if you decide to move back to Canada? Definitely start discussing your return plans as early as possible.

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