SUGGESTED TIMELINE
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TAXPAYER ACTIONS |
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At least two years before moving to the U.S.
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- Determine the entry requirements to lawfully reside in the U.S. and initiate any necessary visa and social security number applications if you are planning to work in the U.S.
- Evaluate the requirements to maintain or abandon Canadian immigration status if not a Canadian citizen, e.g., visa expiry, permanent residence status, citizenship application in progress.
- Discuss retaining or severing Canadian tax residency with a cross-border tax professional and options for tax residency in the U.S. if not a U.S. citizen, e.g., treaty tie-breaking U.S. nonresident, dual-status part-year resident, or full-year resident U.S. taxpayer.
- Compare Canadian taxation to U.S. taxation of your various income sources and assets, including state income tax, federal and state estate taxes, federal and state gift taxes, and property taxes.
- Inventory your assets and expected income sources during U.S. residency.
- Understand the Canadian tax consequences of ceasing tax residency, e.g., deemed dispositions at fair market value and non-resident withholding tax rates on Canadian income and sales of real estate.
- Understand the Canadian income tax, U.S. estate tax, and provincial probate consequences of leaving assets in Canada.
- Consider any applicable tax planning opportunities to implement before your departure:
- Accelerate or defer income over tax years to allocate to low-income tax years and the low-tax rate country depending on income type.
- Exercise Canadian tax-preferential stock options before establishing U.S. residency.
- Defer bonus and stock compensation receipts until after severing Canadian residency.
- Maximize RRSP contributions and claim RRSP deductions in departure year if your departure triggers higher income and gains.
- Repay outstanding amounts under a Home Buyers’ Plan to avoid an income inclusion of the balance in the year of departure.
- Convert RRSP accounts to RRIF accounts to allow for periodic RRIF withdrawals at 15% nonresident withholding tax following the year of conversion. Otherwise, 25% withholding applies to RRSP withdrawals.
- Manage and crystallize gains in RRSP/RRIF if state tax will apply.
- Strategize RESP and RDSP contributions and withdrawals to maximize the grants and benefits of those accounts.
- Review portfolio holdings with your advisor to identify securities that cannot transfer to a U.S. financial institution, such as Canadian mutual funds, and plan for tax efficient disposal while minimizing fees.
- Plan to dispose of Canadian investments that may create punitive U.S. tax consequences or tax filing complexities under the passive foreign investment company (PFIC) tax rules, such as Canadian ETFs.
- Realize capital losses in the appropriate tax year to reduce departure capital gains.
- Realize capital gains if higher tax rates will apply in the U.S., e.g., short-term capital gains or your U.S. income is too high to be eligible for long-term capital gains rates.
- Consider making gifts to children and other heirs before establishing U.S. residence to avoid U.S. gift tax and reduce estate subject to U.S. estate tax.
- Close the sale of your principal residence before ceasing residency to maximize your principal residence exemption and avoid non-resident withholding tax and CRA clearance procedures.
- Sell other Canadian properties while still Canadian resident to avoid non-resident withholding tax and CRA clearance procedures if no intention to keep the properties while living in the U.S.
- Discuss your long-term strategy and intentions for your Canadian private corporation shares or Canadian partnership interests with your cross-border tax professional. Valuations may be required for deemed disposition reporting.
- Discuss with your tax professional any issues related to retaining your trustee duties for a Canadian trust or estate and consider resigning as trustee to simplify compliance. There are also U.S. tax issues if you are a beneficiary of a Canadian trust that accumulates income.
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Close to departure date
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- Ensure the U.S. Immigration Services has finalized your U.S. residence documents.
- If your employer is relocating you, confirm if you will continue CPP contributions or contribute to U.S. social security.
- Obtain U.S. individual taxpayer identification numbers (ITIN) for all family members, including minor children, to claim as dependants for U.S. taxes.
- Confirm your date of departure and entry with the cross-border tax professional who will be preparing your Canadian exit tax return and your U.S. entry tax return.
- Provide your departure date to your financial advisor, financial institutions, and pension administrators with your change of address notification and your new documentation/tax forms (IRS W9 and CRA NR301).
- Consider crystallizing capital gains in your RRSP/RRIF by selling and repurchasing gain securities on the same day to step up the cost basis if your accountant will treat as a taxable investment account for U.S. federal and/or state tax purposes.
- Withdraw or liquidate securities in your TFSA and close the account because U.S. residents are unable to maintain TFSAs in Canada. Contributions to a TFSA while non-resident of Canada are subject to penalty tax.
- Change the subscriber of your RESP to a trusted Canadian-only family member to prevent U.S. tax on income and gains if you decided to keep your RESP intact.
- Request a report from your advisor with the fair market value (FMV) of the investment assets you owned on your departure date and provide to your accountant to report the departure gains on your final Canadian resident tax return.
- Record the FMV of assets in U.S. dollars using the foreign exchange rate on your departure date and provide to your accountant to elect a cost basis step up for U.S. tax purposes. U.S. citizens can also claim a foreign tax credit against the deemed gains for U.S. tax purposes.
- Set up a CRA non-resident withholding tax account if you are keeping a Canadian rental property while non-resident.
- Elect to apply withholding tax on your net rental income, instead of gross rents, by filing CRA Form NR6 and filing a Section 216 tax return each year.
- Arrange with CRA to post acceptable security if deciding to defer payment of departure tax in excess of $16,500.
- Obtain a copy of your Canadian credit report as evidence of your credit history for U.S. financial institutions.
- Explore cross-border banking and investment options with your existing Canadian institutions.
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Arrival in the U.S.
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- Obtain a U.S. driver’s licence to establish photo identification with your new address.
- Open U.S. bank accounts and apply for credit cards in the U.S.
- Close unessential Canadian bank accounts and cancel Canadian credit cards.
- Open U.S. investment accounts with Raymond James (USA) Ltd. and transfer your investments to your new U.S. accounts, then close your Canadian accounts (non-registered accounts).
- Obtain U.S. medical insurance.
- Cancel your provincial health insurance within the allowable grace period for absence from the province.
- Update your CRA MyAccount address and change your direct deposit instructions to your U.S. bank if electing to receive your government benefits in U.S. dollars. CPP and OAS are exempt from Canadian withholding tax, and OAS is not subject to recovery “clawback” tax for U.S. residents.
- In consultation with a state attorney, create new wills and other legal documents to reflect U.S. residence and an estate plan that is valid under the laws of your state.
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In April, following the year of departure
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- File your Canadian T1 tax return with departure date to report start of non-residency for income tax purposes and include all departure-related tax forms, including Forms T1161 and T1243.
- File your first U.S. 1040 tax return to establish U.S. tax residency or normal return if U.S. citizen.
- Optimize your U.S. tax filing position with your cross-border tax accountant based on actual income received for the calendar year and your entry date.
- Include any treaty elections with the U.S. tax return such as cost basis step ups.
- File FinCEN Form 114 annually to report foreign financial accounts (ownership and signing authority), including Canadian registered plans, to the U.S. Treasury department. You may also have an annual Form 8938 requirement to report foreign financial assets to the IRS.
- File CRA T1135 for foreign assets (non-Canadian assets) held during the year while Canadian resident.
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