Cross-border and expatriate issues
Many Canadians spend years living in the U.S. either as students or working. This article documents and suggests how to handle some common cross-border issues, particularly for Canadians resettling in Canada after some time away. Much of this information will also be applicable to U.S. citizens who immigrate into Canada.
- 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.
- Keep a US 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.
- Before you move back, review Canada Border Services Agency's Travellers - Settling in Canada or coming to Canada to study or work and read every linked document.
- 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 presentation of the title 72 hours prior at the border post you use to exit from the US. 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.
- 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.
- 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 cheques and stock and bond certificates are not a good idea. Moving cash or equivalent instruments across the border is legal, but amounts over $10,000 must be declared on entry and exit. (The stated purpose is to thwart financing of criminal and terrorist activity, so imagine what border security's suspicion is on seeing such a declaration. Have a good explanation for why you are moving funds this way.) Chances are you won't get caught if you try, but if you are, it can be confiscated. If you're moving money in quantity, set up a US$ 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.
- 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 US. You still have to be careful once you're back. For tips on changing your money, check this page.
- 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.
- 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 generally be paid back.
- 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.
- If you decide to move the money from the 401(k) to an IRA, do it before you leave the US. 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 check in the joint name of the financial institution and you without withholding 20% - that's okay.
- You must have an IRA with someone who will deal with Canadian residents. TD Ameritrade is reluctant but able. 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. TD Ameritrade allows trades over the Net and will send statements to Canada (although they will prefer you go all electronic). 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.
- 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 an IRS mandated schedule, it can be done without attracting the penalty. More information on this than you ever want to know is available at this site.
- 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 a Registered Retirement Savings Plan (RRSP) they left behind.) Once the money comes out, 30% 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.
- The most recent revision to the US-Canada tax treaty exempts income and gains inside a Roth IRA from Canadian taxation, so long as no contributions are made to the account after settling in Canada. To exempt Roth income, you must file a one-time election with the Canada Revenue Agency. Withdrawals from Roth IRAs are not taxable in Canada under most circumstances. To keep things simple, file the required election with your first Canadian tax return and do not make a contribution to the Roth while you're a resident of Canada.
- Canada doesn't recognize educational IRAs, Coverdell ESAs, or 529 plans as anything other than normal accounts, nor does the tax treaty require special treatment. They will be nothing but a headache to you once you're in Canada. If you're not 59 1/2, there is little you can do. Be prepared to declare income earned in the plan every year on a Canadian tax return, and file form T1135 as required.
- 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 or Service Canada's International Benefits Program. If you collect Social Security, 15% of it is tax free in Canada under the current treaty.
- 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 a Service Canada office close to where you move and provide them with basic information within a very short time of arriving. HRSDC will fill out an application on your behalf and forward it to the relevant office in the U.S.
- 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 15% of the sale proceeds withheld and remitted to the IRS because you're a foreigner. Take advantage of the $250k capital gain exemption ($500k if married) on sale.
- 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.
- 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.
- 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. This form is very rarely filed, failure to file seems to attract no penalties, but you may want to dot all i's and cross all t's.
- 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 may be subject to special expatriate taxes. Until very recently, the Internal Revenue Code imposed income and estate tax liability as if you were still in the US for a period of 10 years after leaving. If you met certain income and asset tests and you have emigrated to the country where you or your spouse (or either set of parents) came from, you can get out of the liability. A very recent change to the Code imposes a completely different taxation regime, with capital gains taxes due on appreciated assets and hefty withholding taxes on retirement and deferred compensation accounts. If you have significant assets, consult a competent cross-border tax specialist.
- For years to come, you may be consulting IRS Publication 519, U.S. Tax Guide for Aliens. Get a hard copy before you leave or download the PDF version afterwards.
- You'll likely be needing a half decent copy of the U.S.-Canada Tax Treaty too.
Moving to the United States from Canada
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Becoming a Non-Resident Canadian
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Canada has tax treaties with many other countries, the purpose of which is to avoid double taxation on income and to share information and resources between tax authorities to minimize evasion of tax obligations. The current status of all Canadian tax treaties can be found on this Finance Department website. A comprehensive list with links to the text of treaties currently in force is available on this page.
- Robert Keats, The Border Guide ISBN 978-1551805726. It's US$18 well spent, whichever way you're crossing the border.
- Brian D. Wruk, Terry F. Ritchie, The American in Canada: Real-Life Tax and Financial Insights into Moving and Living in Canada ISBN 978-1550227901
- Financial Wisdom Forum topic:
- Financial Wisdom Forum topic:
- Norbert Schlenker, If You're a Snowback Returning from the U.S., Posted: Wed Feb 16, 2005. Rewritten to Wiki format, renumbered, and modified.
- U.S. Customs and Border Protection, Exporting a Motor Vehicle, viewed 13 April, 2015.
- Canada Border Services Agency, Traveling with $10,000 or more, viewed 7 January 2018
- Internal Revenue Service, Retirement Plan Loans, viewed 7 January 2018
- Internal Revenue Service, Rollovers of Retirement Plans, viewed 7 January 2018.
- Internal Revenue Service, Tax on Early Distributions, viewed 7 January 2018.
- IRS Publication 515, viewed 7 January 2018
- Finance Canada, US-Canada tax treaty (Article XVIII], viewed 7 January 2018.
- CRA, Pensions from a Foreign Country, viewed 7 January 2018.
- CRA, Federal Foreign Tax Credit, viewed 7 January 2018.
- Canada Revenue Agency, Income Tax Technical News, viewed 23 March, 2016.
- Social Security Administration, Social Security Credits, viewed 7 January 2018.
- Agreement Between the Government of Canada and the Government of the United States of America with Respect to Social Security
- How to file a claim for American Unemployment Insurance benefits
- IRS Publication 515, viewed 7 January 2018.
- IRS Tax Topic 701, viewed 7 January 2018.
- IRS, Departing Alien Clearance, viewed 7 January 2018.
- International Tax Review, New section 877A significantly alters expatriation tax regime, viewed 2009-03-04.
- Instructions for New Streamlined Filing Compliance Procedures for Non-Resident, Non-Filer U.S. Taxpayers
- Taxation as a US person living abroad - Bogleheads wiki
- Canada / United States Tax & Accounting, by Serbinski Accounting Firms A discussion forum specializing in US / Canada cross-border tax and accounting issues.
- Globe and Mail, Planning a move to the U.S.? Three tax tips to consider
- Globe and Mail, How to move away from the long arm of the Canadian taxman