Why Mutual Funds Don't Travel Well Across the U.S.–Canada Border

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

If you're planning a move between Canada and the United States and currently hold mutual funds in a non-registered investment account, it’s time to hit pause and take a closer look. While mutual funds are often seen as safe, diversified, and familiar investment choices, they can become problematic—and costly—when international borders come into play.

• The Hidden Risks of Moving Mutual Funds Across Borders
• Best-Case Scenario: Convert Mutual Funds to ETFs Before You Move
• If Conversion Isn’t an Option
• Canadians Moving South: Watch for the PFIC Trap
• The Cross-Border Solution
• Final Word

The Hidden Risks of Moving Mutual Funds Across Borders

Mutual funds are built to function within the regulatory framework of their country of origin—which is perfectly fine until your country of residence changes. Once that happens, those same mutual funds can quickly turn into financial liabilities.

When you update your account address to reflect your new country, many financial institutions will freeze the account or restrict it to “sell only” transactions. That means no rebalancing, no professional management, and no ability to adjust to evolving market conditions.

In the worst-case scenario, the institution may require you to transfer the account within 30, 60, or 90 days—or they may liquidate the holdings entirely and send you a cheque. This can create major issues if it triggers the realization of previously unrealized capital gains, leading to an unexpected—and often significant—tax bill.

Best-Case Scenario: Convert Mutual Funds to ETFs Before You Move

The most strategic move? Contact the financial institution currently holding your mutual funds and ask whether they can be converted into ETFs before your relocation. If the switch can be made within the same fund family—via a fund-to-fund transaction—it may avoid triggering a taxable event.

Why is this important?

• ETFs tend to travel better across borders. U.S.-listed ETFs, in particular, are often compatible with both Canadian and U.S. residency, depending on account type.
• Avoiding a taxable event preserves your gains and shields you from an avoidable tax hit.
• Once converted, your portfolio can be transferred to a cross-border financial advisor who will manage it professionally and in compliance with your new tax jurisdiction.

But not all mutual funds have ETF equivalents, and not all institutions support these conversions. That’s why the first call you make should be to the financial institution holding your investments.

If Conversion Isn’t an Option

If your mutual funds can’t be switched to ETFs, you’re left with two less-than-ideal alternatives:

1. Leave the Account Where It Is (If allowed)

Some investors attempt to leave their accounts untouched at the original institution. While this may be temporarily possible, the account is usually frozen or significantly restricted. Imagine leaving a beloved pet behind when you move—technically it’s still yours, but without daily care and oversight, it won’t thrive. Similarly, an unmanaged account left behind can’t adapt to your changing financial needs or risk profile.

2. Sell and Trigger a Tax Event

The other option is to sell the mutual funds, realize any gains, pay the resulting tax, and rebuild your portfolio with investments suited to your new country of residence. This route should always be taken with guidance from a cross-border financial advisor who can help you rebuild efficiently and minimize your tax burden.

A Real-World Example: The Cost of Waiting Too Long

Consider Harper, a successful U.S. professional who relocated to Canada for a promotion. After updating their address with their U.S.-based financial advisor, Harper and his wife found their investment accounts frozen. The advisor warned that unless the accounts were moved quickly, they’d be liquidated.

Unfortunately, the accounts were sold before the couple could act, triggering substantial capital gains and an avoidable tax bill. Harper tried to salvage his own account in time, but delays meant his too was ultimately liquidated. The financial hit was real—and entirely preventable with earlier planning.

Canadians Moving South: Watch for the PFIC Trap

On the flip side, if you’re a Canadian moving to the U.S. and continue holding Canadian mutual funds or ETFs in a non-registered account, you could fall into the IRS’s PFIC (Passive Foreign Investment Company) trap.

These investments are subject to complex reporting requirements under IRS Form 8621—potentially one form per fund, per year, even if no transactions occur. This can lead to hours of paperwork, steep accounting fees, and punitive tax treatment if not handled correctly. The solution? Avoid Canadian mutual funds and ETFs entirely once you become a U.S. tax resident.

The Cross-Border Solution

While all of this may sound like a minefield, there are clear solutions—especially if you act before your move. With the right strategy and professional guidance, you can:

• Convert mutual funds to ETFs without triggering tax
• Transfer your account across the border cleanly and compliantly
• Build a tax-efficient portfolio designed to thrive in your new home country

Final Word

If you’re holding mutual funds and planning a move between the U.S. and Canada, don’t wait until after your relocation to address your investments. The best-case scenario is to convert your mutual funds to ETFs before your move—ideally in a way that preserves your gains and avoids triggering capital gains tax.

Once that’s done, a clean transfer can be made to a cross-border financial advisor who can ensure your investments continue to grow—on both sides of the border.

Plan early. Act wisely. Avoid costly surprises.Because when it comes to cross-border investing, timing isn’t everything—it’s the only thing.

About Snowbirds Wealth Management

Gerry Scott is a Portfolio Manager and founder of Snowbirds Wealth Management, an advisory firm focussed on the cross-border market. Together with Dean Moro and Carson Hamill, Associate Portfolio Managers 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.

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