Mistakes to Avoid When Moving to Canada

Written by Carson Hamill CIM®, CRPC®, Associate Financial Advisor and Assistant Branch Manager & Dean Moro BComm, CIM®, Associate Financial Advisor

So, you’re considering leaving the U.S. and moving to Canada. Whether you are relocating for love, family, a job, or maybe just a change of scenery. We have seen the trouble you can get into if you don’t plan your move properly. Here are the common mistakes U.S. individuals make when moving north to Canada:

1. Not hiring an immigration lawyer
2. Not working with a cross-border accountant
3. Not working with a cross-border financial advisor

Mistake #1 - Not hiring an immigration lawyer

Working with an immigration lawyer is not a necessary step in the immigration process. However, as you can imagine, hiring an immigration professional can make this complicated process easier and could be the difference between a successful immigration application or being declined. If you decide to go with the do-it-yourself (DIY) strategy, you will be required to navigate a complicated system of documents, programs, deadlines, and more.

If the DIY strategy sounds like too much work, an immigration lawyer may be your best bet and well worth the additional cost. While there are additional costs associated with working with an immigration lawyer, note that partnering with an immigration lawyer does not guarantee a successful application. However, it can also increase your chances of success, ensuring you have an accurate application and experience dealing with any hiccups along the way.

Working with an immigration professional is a justifiable cost that will ensure you have a quarterback navigating you through the complicated immigration application process.

Mistake #2 - Not working with a cross border accountant

As a U.S. citizen living in Canada, you will have to file tax returns in both countries. Do you really want to figure out double taxation on your own? A cross border accountant will help address topics such as:

• What is the Exit Tax in the USA?
• How is the Exit calculated?
• What is Deemed Disposition of Capital Assets?
• What is Deemed Distribution of Tax-Deferred Assets?
• The difference between a Covered vs Not Covered Expatriate?
• Should you Renounce your US Citizenship?
• What about my Social Security?
• Tax-deferred Accounts and the U.S. Exit Tax Investment Cost Basis?

Obviously, it is crucial to integrate a financial plan that is well versed in the Canada-US Tax Treaty. The Canadian and US tax systems operate under unique mandates which creates the risk of double taxation for expatriates. Double taxation occurs when both Canada and the US simultaneously tax the same income during the same tax year.

The Canada US Tax Treaty is the most powerful tool for mitigating double taxation. The tax treaty is intended to stop individuals from being taxed twice on their income in the same year. Canada has a higher tax bracket then the U.S., therefore in most cases once you are living in Canada you may not owe any tax in the U.S. due to the foreign tax credit.

However, this isn't always the case. It is imperative you do your part, including paying your taxes, filing accordingly, and being compliant with the CRA and IRS. At the same time, you also want to avoid paying more tax than necessary. When dealing with complicated cross border estate or tax planning situations, there is an increased risk of costly errors if this isn’t done correctly. That is why you should always consult a cross border tax professional.

Mistake #3 - Not working with a cross-border financial advisor

Here we explain why you should work with a cross border financial advisor, instead of a financial advisor who is only licensed in one jurisdiction, concentrating in just Canada or the United States. American and Canadian citizens cross the border for various personal and professional reasons. It is crucial to understand that there are substantial differences between the U.S. and Canada with respect to tax, estate, and investment planning.

Crossing the border, whether on a permanent basis or just temporarily, amplifies the difficulty of investment management, financial planning, and estate planning. When assets such as retirement accounts, real estate and investment interests are accumulated in both countries, movement without appropriate planning can result in a disorganized financial plan, or no plan at all. This can result in higher taxation, misaligned portfolios, and estate planning errors. Dealing with these issues prior to relocating can be extremely helpful and save you significant time and money.

It is important that individuals with cross border complexities evaluate their situation with a cross border financial adviser that has a full understanding of their unique needs. A cross border financial advisory team should include a licensed portfolio manager who is competent to manage client investment accounts in both Canada and the U.S., as well as a cross border financial planner who is knowledgeable in the planning complexities of both the United States and Canada.

Qualified competent cross-border advisory teams are not as common as you would think. Not all financial services firms provide a platform and the licensing capabilities to service assets on both sides of the border. When it comes to investment management most Canadian financial advisors are only licensed to work with Canadian investment accounts and/or Canadian domiciled clients. And it’s the same case for U.S. based financial advisors – typically they are only authorized to manage U.S. investment accounts and/or American domiciled clients.

Below are common issues that can arise when you don’t work with a cross-border adviser:

1. When working with multiple advisory teams, the investment strategy and philosophy used by one financial adviser will differ from the others. Imagine trying to play hockey for two coaches when they aren't working together. How are you supposed to win the game or reach your goal? If the market turns or you need financial advice, who do you call first?
2. Your advisers may not understand the taxable impact of their investment advice in the context of a cross-border compliant tax strategy. You could end up with PFIC exposure, for instance, or other costly issues.
3. If you have accounts in both Canada and the U.S. under separate advisory teams, you may have portfolios in similar investments unknowingly, which could increase risk due to lack of diversification.
4. Financial plans that do not include certain assets.
5. Have assets with multiple advisors can increase costs. Fees are often set based on the amount of money under management.
6. Often advisers will insist that clients move cross border assets to the country in which that adviser is registered to get the business. This can lead to unnecessary taxation and other costs.

Advantages of working with a cross-border financial advisory team include the following:

1. A cross-border plan that includes your assets on both sides of the border. This can lead to more efficient tax and estate planning.
2. Coordinated investment management services for your U.S. and Canadian investments accounts, ensuring an acceptable amount of diversification and avoiding costly PFIC related issues.
3. Unbiased advice on whether specific assets should be transferred to Canada or remain in the United States.
4. U.S. retirement account distribution strategies while residing in Canada.
5. Support and guidance with retirement benefits like CPP, OAS, Social Security and Medicare
6. Access to currency conversion strategies.
7. Combining and consolidating assets can reduce management costs.

Protecting your wealth and having an effective cross-border investment strategy is crucial when you are preparing prepare to move across borders or have ties to both the United States and Canada. There is no one size fits all - the best strategy is to work with an experiences cross border advisory team that has the capability, knowledge, and platform to manage assets in both Canada and the U.S.

Next Steps:

If you are planning on moving to Canada and need assistance with your investments, estate planning, and portfolio management, please call or email us at Snowbirds Wealth Management, as we specialize in cross-border financial planning and wealth management. We work closely with experienced cross-border lawyers and accountants to ensure you have a team behind you.

About Snowbirds Wealth Management

Gerry Scott is a portfolio manager and founder of Snowbirds Wealth Management, an advisory firm focused on the cross-border market. Together with Dean Moro and Carson Hamill, associate financial advisors with Snowbirds Wealth Management, they provide investment solutions for Americans living in Canada, and Canadians residing in the United States. Licensed in both Canada and the US, they provide tailored investment solutions to minimize the tax burden when moving assets across borders. To schedule an introductory call, please click here.

Statistics and factual data and other information are from sources RJLU believes to be reliable but their accuracy cannot be guaranteed. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities nor is it meant to replace legal, accounting, taxation or other professional advice. We are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax-related matters. The information is furnished on the basis and understanding that RJLU is to be under no liability whatsoever in respect thereof.

Raymond James (USA) Ltd. advisors may only conduct business with residents of the states and/or jurisdictions in which they are properly registered. Investors outside the United States are subject to securities and tax regulations within their applicable jurisdictions that are not addressed on this site. Raymond James (USA) Ltd. is a member of FINRA/SIPC.