Cross-border and expatriate issues
A few tips to help you avoid some scars
The Basics
1. Keep a bank account in the US, no matter what. Banks deal with non-residents on a regular basis. It's no problem for them whether you live in Canada or Botswana. You want an account that isn't going to cost a lot in fees. Shop around before you leave the country.
2. Keep a U.S. credit card. You'll find it useful the next time you shop online in the US or travel either to the US or any other country that uses US$. Again, shop around before you leave the country. You don't want anything that has high interest or fees.
3. Before you move back, go to this page and read every linked document.
4. Vehicles are remarkably difficult. If you want to bring a vehicle back to Canada, you will jump through hoops. If there's a loan on the vehicle, you probably don't have the title, the lender does. Believe it or not, it is U.S. federal law that motor vehicles cannot be exported without prior presentation (I believe the rule is 72 hours prior) of the title at the border post you will exit. On the Canadian side, you need to check with the Registrar of Imported Vehicles to get the car into the country. Customs may charge GST and/or PST at the border. One happy note: They take plastic.
5. Have a comprehensive inventory of household goods. Be prepared to pay GST and/or PST on any imported item exceeding $10k in value. Liquor, tobacco, and firearms are not good things to have on the list.
6. When you cross the border, don't do it with more than either US$10,000 or C$10,000 in cash or bearer instruments, including certified checks or bank drafts. Even traveller's checks and stock and bond certificates are not a good idea. Chances are you won't get caught if you try, but if you are, it can be confiscated. If you're moving that sort of dough, set up a US$ bank account in Canada and write a check on the account you left in the US. The Canadian bank will hold the funds temporarily; if that's a problem, get the U.S. bank to wire the money to the Canadian bank.
7. Do not, except under duress, change large sums of US$ to C$ before you get back to Canada. You will be taken to the cleaners in the U.S. You still have to be careful once you're back.
8. Fix your will and get a new power of attorney once you're back in Canada. If you ever drafted a will while in the U.S. and were advised to use trusts to avoid probate fees or estate taxes, that will still work but you should know that you are setting yourself up for a long tax nightmare in Canada. Consult a professional.
Retirement accounts
9. Canada doesn't recognize Roth IRAs or educational IRAs. They will be nothing but a headache to you once you're back. If you're not 59 1/2, there is little you can do. Be prepared to declare the income every year.
10. If you have a loan from your 401(k), pay it back now. After you are separated from your employer, even if they will let you keep the 401(k), loans must be paid back.
11. If you are happy with the investment choices in the 401(k), it's tempting to leave the money there. Depending on employer, 401(k) plans can have access to institutional class funds that are not available to retail investors and that have much lower costs. That's not always true, so you have to make up your own mind.
12. If you decide to move the money from the 401(k) to an IRA, do it before you leave the country. Make sure it's a direct transfer. You never want the money paid to you because 20% will be withheld and sent to the IRS. If you have sufficient cash to make up for that deduction, you can put the full amount into an IRA and get it all back on next year's tax return. It's still a hassle and you lose the use of the money. Note that, if you give the employer the name and account number of an existing IRA, they usually issue a cheque in the joint name of the financial institution and you without withholding 20% - that's okay.
13. You have to have an IRA with someone who will deal with Canadian residents. I use TD Waterhouse. There was a flurry of threats by mail when the OSC started giving U.S. brokers a hassle in the fall of 2000 but that has subsided. TDWHUSA lets me trade over the Net and sends me statements in Canada. It works.
If you are very risk averse and would keep your IRA strictly in bank products, like CDs, then just open an IRA at a bank. Unlike brokers, there is no doubt that they will deal with non-residents. Note that this doesn't hold true if you buy funds inside a bank, as that is almost always handled by a separate broker-dealer subsidiary.
14. If you need money out of your IRA or 401(k) before you are 59 1/2 years old, beware the 10% penalty tax. If you are willing to draw small amounts, per the IRS' schedule, it can be done without attracting the penalty. More information on this than you ever want to know is available at this site.
15. You don't need to file anything with CRA every year to defer the tax on income inside a 401(k) or regular IRA. (Canadians often don't know this unpleasant little fact: they do have to file something every year with the IRS to defer the tax on income inside an RRSP they left behind.) Once the money comes out, 25% will be withheld by the IRS if it's a lump sum and 15% if it's a regular payment in retirement. Any withdrawal is fully taxable in Canada. The IRS withholding is fully creditable against the Canadian tax liability.
Government benefits
16. To collect U.S. social security, you normally must have worked 40 quarters and paid FICA. Canada and the U.S. have something called a totalization agreement which modifies this rule. If you worked at least 6 quarters in the U.S., you are eligible for a reduced Social Security pension at retirement age. Contact the Social Security Administration for an estimate of what you would get paid. If you collect Social Security, 15% of it is tax free in Canada under the current treaty.
17. If you were laid off and came back to Canada, you are eligible for unemployment insurance from the state in which you were employed. You must contact an HRDC office close to where you move and provide them with basic information within a very short time of arriving. HRDC will fill out an application on your behalf and forward it to the relevant office in the U.S.
Taxes
18. If you own a house in the U.S., sell it while you're still a tax resident. You do not want to have up to 30% of the sale proceeds withheld and remitted to the IRS because you're a furriner. Take advantage of the $250k capital gain exemption ($500k if married) on sale.
19. You may have made investments in the US that are tax exempt or tax deferred under US law. Examples would be municipal bonds and US government savings bonds. Canadian tax law does not recognize such exemptions and deferrals. Sell those assets before you leave the US.
20. Capital gains taxes don't work quite the same way under the two countries' tax systems. A generally good rule of thumb for any taxable investment is to sell it if it's in a loss position while you are still in the US, and to keep it until after you are in Canada if you have a gain.
21. Legally, you are supposed to file a departure tax return, also called a sailing permit, on Form 1040-C before you leave. With it, you estimate your taxes for the year of departure and pay up. You file a 1040NR the next April. I didn't get a sailing permit, I don't know anyone who has, but you may want to dot all i's and cross all t's.
22. Once you're safely back in Canada, get yourself clear of the IRS. If you spent more than 8 of the past 15 years in the U.S., you are subject to expatriate taxes as if you were still there for a period of 10 years after leaving. Those taxes include income and estate taxes. If you meet certain income and asset tests and you have emigrated to the country where you or your wife (or either set of parents) came from, you can get out of the liability. But you need to file the right forms.
23. For years to come, you may be consulting the [1]Tax Guide for Aliens] (500k PDF). Get a hard copy before you leave or be prepared to download it afterwards.
24. You'll likely be needing a half decent copy of the U.S.-Canada Tax Treaty too.
Other useful references
25. Buy a copy of The Border Guide by Robert Keats. It's US$18 well spent, whichever way you're crossing the border.
26. Keep an eye on the cross-border tax discussion board Serbinski.com. It's full of good stuff.