I am moving to the USA from Canada. Can I open a taxable investment account in the U.S.?
The short answer is, “yes.” But don’t make a move without understanding the process.
A move to the U.S. can be quite daunting, especially when it comes to finances. If you have a family and/or have spent years accumulating wealth in Canada (in a variety of different accounts), then you may find yourself in a position of wondering, “What can I keep open? What must I close? What should I transfer to the U.S.? What are the tax implications? Who do I talk to about it all?!”
Those are all great questions! At Huston Wealth Management, we want to help make this process as smooth as possible for you. This article will give you some simple steps to take regarding your old or new taxable investment accounts.
Question 1: What should I do with my Canadian taxable (non-registered/non-retirement) investment accounts?
Step 1: Don’t rush to liquidate your Canadian investment accounts!
Once you move to U.S., there are several things to consider when it comes to your non-registered accounts. One of those is how Canada now views your account.
When a Canadian resident with a non-registered account in Canada moves to the U.S., the Canada Revenue Agency (CRA) considers that non-registered account to be a “deemed disposition.” That means that when you become a non-resident of Canada, the CRA looks at that account as having been fully liquidated… even if it hasn’t been. What this means for you is that you would be on the hook for any capital gains that might be triggered.
But there is another potential hurdle to consider. If you transfer that account into the U.S., the Internal Revenue Service (IRS) will consider your sale of assets as taxable, using your original cost basis to calculate your capital gains. This could result in the dreaded double taxation.
But wait! Under the Canada-US tax treaty, you are able to make an election for the IRS to step up your cost basis to the fair market value of your assets on the day that you cease to be a Canadian resident. That way, you may pay taxes in Canada, but not in the U.S. Please speak with our tax professionals to understand more about these rules.
Step 2: Consider a transfer of assets from your U.S. account to a Canadian account.
If you don’t want to liquidate your portfolio, Huston Wealth Management can help. As a part of Raymond James (USA) Ltd. (RJLU), Huston Wealth Management can facilitate a transfer of your assets to the U.S. and service your account there.
**NOTE** You should be aware that the U.S. and Canada tax non-registered accounts differently. And when you move your account to the USA, you will want to be aware of your tax liabilities in both countries. That is where our tax professionals at RJLU come in. They specialize in cross-border wealth management and would love to help you have a smooth transition.
You can have one cross-border financial advisor for your accounts in the U.S. and Canada. So don’t start liquidating everything and realizing capital gains just yet.
Step 3: Be Careful with Mutual Funds
When it comes to mutual funds that you hold in your non-registered account in Canada, you will not be able to transfer those funds to a U.S. account. Furthermore, some mutual fund companies may force you to redeem your shares once you establish U.S. residency.
Step 4: Consider a U.S. non-registered account in Canadian currency.
One big consideration when moving south of the border is the exchange rate. Depending on when you move, the amount of U.S. dollars that you receive for your Canadian ones could be considerably less. Huston Wealth Management can transfer your Canadian dollars into a U.S. based account denominated in Canadian currency. This will allow you to move your money and wait to decide when to convert it.
Question 2: How should I go about opening a Canadian investment account?
Step 1: Establish Residency.
Before you can open a U.S. investment account, you must first move to the States. Once you have arrived, Huston Wealth Management can establish an investment account for you and begin to transfer the assets from your Canadian account.
Step 2: If you are a U.S. citizen, report your Canadian account to the Internal Revenue Service (IRS) each year.
Be aware that, as a U.S. resident (even if you are not a U.S. Citizen or Green Card holder), if your Canadian accounts (combined) amount to $10,000 or more, you will be required to report these accounts to the U.S. Internal Revenue Service each year. This reporting is done through foreign bank account reports (FBARs). Our tax professionals who specialize in cross border tax issues can help you understand the reporting requirements.
Step 3: Get to know the difference between how capital gains are calculated in the U.S. vs. Canada.
As you begin to work with Huston Wealth Management, you should know that the U.S. calculates capital gains differently than in Canada. While Canada calculates cost basis with an “Average Cost Basis” only, the U.S. rules are more complex. First, the U.S. considers positions that are held for less than one year to be “short term” Capital gains that are subject to ordinary income tax. Whereas positions that are held for one year or more are considered “long term” capital gains and can have more favorable tax treatment. Second, the U.S. allows “tax lot” sales. This means that if you buy a stock three separate times (for three different amounts), should you decide to sell a portion of your holding, you can select which tax lot you liquidate.
Though this structure may require a change in strategy, Huston Wealth management would love to help you plan!
Final Piece of Advice: Consider consolidating your accounts with one cross-border financial advisor.
Sometimes our financial lives are too complicated to keep thinking about them. But the worst move you can make is to do nothing. That could spell H-E-A-V-Y tax consequences down the road. We know all of this takes time and planning. Time you probably don’t have since you’re planning a move!
That’s where a dual licensed USA-Canada, cross-border financial advisor comes in. By working with Raymond James USA, you can hold your registered and non-registered accounts with us.
So, let us do some of the legwork for you and allow our tax professionals to offer some guidance. We’ll work behind the scenes while you work on getting settled in the USA.
Disclosure: The information above is from sources believed to be reliable, however, we cannot represent that it is accurate or complete and it should not be considered personal tax advice. We are not tax advisors and clients must seek independent advice from a competent professional advisor on tax-related matters before withdrawing from their U.S. retirement plan.
Disclosure: This material has been prepared by Dean Huston and expresses the opinions of the authors and not necessarily those of Raymond James Ltd. (RJL). Statistics, factual data and other information are from sources RJL 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. This newsletter is intended for distribution only in those jurisdictions where RJL and the author are registered. Securities-related products and services are offered through Raymond James Ltd., Member-Canadian Investor Protection Fund. Insurance products and services are offered through Raymond James Financial Planning Ltd., which is not a Member-Canadian Investor Protection Fund.
Raymond James (USA) Ltd. advisors may only conduct business with residents of the states and/or jurisdictions in which they are properly registered. Raymond James (USA) Ltd. is a member of FINRA/SIPC
