Moving to the U.S. From Canada: The Good, the Bad and the Taxes
Part 1: Before You Go – 9 Things to Know Ahead of Your Move
So you’re heading south of the border! Whether it’s for work, family, school or something else entirely, picking up and moving to the U.S. from Canada is not a small event. While we share a border, a language and many statutory holidays, there are several differences between our two countries – a fact that’s all the more amplified when you actually start living in the States.
This is the first of a five-part series that looks at moving to — and living in — the U.S. as a Canadian. Here are steps you’ll want to consider before you move – steps that may help save you considerable amounts of time, money and headaches. In fact, Geoff Hartley, Financial Advisor with RBC Dominion Securities, says, “The best advice I can give anyone moving to the U.S. from Canada is to start planning as early as possible, and to seek a professional for cross-border advice and create a plan ahead of time.”
9 things you’ll want to know about before you make the move to the U.S.:
1. Departure Tax – Know What It Applies To
The first thing every Canadian moving out of the country — and ceases Canadian residency for tax purposes — needs to know is that the Canadian government will charge a departure tax (also known as a deemed disposition tax) on accrued gains on many of the assets, including the investment portfolio you own – whether you sell them before leaving or not. It’s like an exit tax that applies when you become a non-resident of Canada.
Some assets are completely exempt — you pay Canadian tax when you actually sell them, receive distributions or exercise them — such aswhen real estate within Canada is sold, as well as distributions fromregistered accounts (i.e. your RRSPs and RRIFs) are received and your employee stock options are exercised. On the other hand, real estate outside of Canada, shares of companies, and non-registered investments such as stocks and mutual funds are subject to departure tax. Departure tax will not apply if you maintain Canadian tax residency while you are abroad.
It’s a good idea to meet with a tax advisor well ahead of your move so you can work together to consider your residency status in Canada and strategies to either reduce or defer your tax obligations.
If you will cease Canadian residency, managing the departure tax is one area where it's particularly important to start planning early, so that you and your advisor have enough time to put together a plan for your assets.
2. What to Do About Your Home
Depending on the reason for your move to the U.S., the decision to sell or keep your home in Canada might be an easy one. For example, if you won’t be returning to Canada anytime soon, then selling your home likely makes good sense. But if you’ve got a 1-2 year U.S. contract and plan to return, keeping your Canadian home may be a better long-term option.
Here are a couple of things to keep in mind from a tax standpoint:
- Maintaining a home in Canada, which is a significant tie to Canada, may indicate to the government that you are still a Canadian resident, which will require you to continue to pay Canadian tax on your worldwide income. And if you’re physically living and working in the U.S. at the same time, you may also have a U.S. income tax obligation. The Canada – U.S. Tax Treaty may offer relief from having to pay taxes in both countries.
- By selling your home, you will sever a tie that may indicate to the government that you intend to no longer be a resident of Canada. As a non-resident of Canada you will be subject to tax in Canada only on income from within Canada.
If you are thinking about keeping your home and renting it out while you’re gone, there are some tax implications potentially in both countries beyond the departure tax to consider. Once again, it’s important to talk to a financial advisor or tax professional about how this decision could affect your finances. Either way, it’s best to make your decision before you leave.
3. Finding a Place to Live
As you look ahead to move to the U.S., one of your first decisions will be whether you want to buy or rent. Many Canadians choose to rent first, to test out the neighbourhood and get a feel for their new city before buying.
Others decide to buy right away too. The great news is that it’s not as difficult to purchase a home as a Canadian in the U.S. Finding a U.S. bank that works with Canadians is key to financing your property. Your Canadian credit history can be used to help qualify you for a mortgage.
Buying a home is covered in more detail in the third post of this series, but here are three quick tips to consider:
- Find a realtor who is experienced in working with Canadians.
- Find a bank that offers cross-border mortgage expertise, so you can work with someone who understands the process for Canadians buying U.S. property.
- Mortgage processing in the U.S. takes longer – generally 45-60 days, so quick closings like in Canada aren’t really possible.
4. Signing Your Kids up for School
If you have kids, a significant factor that drives where you choose to live is the proximity to good schools. You can also learn more about the ethnic diversity that makes up a school, teacher experience, and student-to-teacher ratios. Greatschools.org reviews schools in the areas you’re considering living.
5. Getting Your Paperwork Together
Getting the ball rolling on your move starts with organizing all the necessary documentation the U.S. government needs to let you in. Since you’ll require a particular type of visa depending on the purpose of your move, be sure to review your individual visa requirements with the U.S. Department of State.
But in general you will need to have:
- Passports for all family members.
- Your approved visa.
- Copy of your I94 document (U.S. customs officials will provide this form when you cross the border).
- Completed HS7 form for every vehicle you’re importing.
6. Setting up Your Banking and Credit
Since you may only be able topay your U.S. bills in U.S. dollars, one of the first things you’ll need to set up is a U.S. chequing (or checking) account. It’s possible to set up a cross-border banking account evenbefore you leave Canada.
If you decide to keep your Canadian bank accounts you’ll need to have the ability to easily move money back and across the border — being able to do this online, and the costs associated with it, are critical factors to consider as you set up your U.S. banking.
While you’re setting up your U.S. bank account, it’s a smart idea to get a U.S. based credit card as well. That way you can avoid foreign transaction fees when paying for U.S. purchases. A U.S. credit card will also help you build a credit rating, which will be important if you’re planning to stay in the U.S. for a while. Look for a U.S. credit card that comes with travel benefits such as travel accident, trip cancellation, auto rental insurance, and rewards you can earn and redeem for travel, merchandise, cash bank and more.
7. Organizing Your Investments
Let’s face it, dealing with your investments prior to your move from Canada to the U.S. can get a little complicated. When you’ve made the decision to move, working with an advisor who is licensed to work with both Canadian and U.S. residents will be important – so your registered and non-registered assets can be managed appropriately and efficiently.
A cross-border advisor who can work in both Canadian and U.S. currencies will allow you to take advantage of favourable exchange rates and build up your portfolio in the currency of your choice.
There are a number of important things to know about managing your investments when you’re planning to move to the U.S. See the fifth post of this series for tips and strategies that will help you deal with your investments in a tax-efficient way that makes both the Canada Revenue Agency and Internal Revenue Service happy.
8. Health Insurance
With the recent change in administration, you’ll want to keep an eye on any changes made to healthcare policies as you plan your move. For more information about the U.S. healthcare marketplace and current requirements, visit http://www.healthcare.gov/.
If you’re a first-time visa holder, it’s important to buy a visitor health insurance plan before leaving Canada in case you need medical treatment before your U.S. health plan takes effect.
9. Bringing Along Fido or Fluffy
If you have a dog or cat over 3 months of age, you’ll need to produce proof of rabies vaccinations and a certificate from your vet stating that your animal is in good health.
While this isn’t an exhaustive list, these are some key things you’ll want to consider as you plan your move to the U.S. Watch out for the other posts in this series for more information about moving to, and living in the U.S. as a Canadian.
More from the Moving to the U.S. from Canada Series:
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.