Top 3 tax issues for Canadians moving to the US

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Any bookkeeping, business or tax article contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor can it be used to avoid tax-related penalties. If desired, we would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.

Top 3 tax issues for Canadians moving to the US

The US and Canada have an undeniably close connection. For the most part, we share the longest unguarded border in the world, and as many as 90% of Canadians live within 100 miles of the border. Further a quarter-century into NAFTA, it is no surprise that our economies are highly intertwined.

Despite the amicable relationship of both countries, there are still some tax issues that arise. Some are well known and are resolved immediately and some tax issues are less known despite the frequency with which they arise for unsuspecting Canadians. Despite the tax treaty between the US and Canada, the domestic tax systems of each country are remarkably different, and cross-border tax planning is critical to avoiding these top 3 tax issues for Canadians moving to the US.

 

Tax issues and rules to keep in mind:

  1. Canadian Departure Tax

Moving to the US bears a lot of important tax issues to remember when planning a move from Canada to the US.

Upon Canadian residency termination, Canada will impose a deemed disposition of most assets, the deemed disposition is commonly known as “Departure Tax”. This deemed disposition is a crucial tax issue that often results in a significant tax bill in the year of departure. This is a tax that would have been payable at some point, but without actual proceeds to pay the tax. US-bound migrants are wise to consider the extent of the departure tax well in advance in case pre-departure tax planning can reduce the Canadian tax bill.

Furthermore, pre-departure planning is necessary to ensure that one’s financial status is ready to be subjected to US tax rules. Understanding the US tax treatment of foreign investments can reveal areas of improvement that should be made prior to leaving Canada. So take this tax issue in mind when finalizing your move down south.

 

  1. Taking Title on US Property

Canadians have continuously ranked among the top international real estate investors in the United States for the past decade or more. The volume of purchases is enormous, whether for personal vacation usage or as an investment plan to earn rental income and capital profits. How to take title is a critical topic that discerning Canadian purchasers need to be answered.

Of course, the answer to the question depends on a variety of criteria, including the property’s planned use, estimated holding time, source of finances, and the buyer’s net worth. Furthermore, there are numerous possibilities for obtaining title, including personal names, corporations, partnerships, and trusts, all of which have various arrangements.

The standard model is that when it comes to title structure, there is no one-size-fits-all solution. As a result, prospective Canadian buyers of US real estate should seek assistance from a tax professional who is familiar with the interactions between the Canadian and US tax systems in order to obtain the best structure.

 

  1. Will and Trust planning when children already live in the US

When a beneficiary of a Canadian estate or trust resides in the United States, it’s critical to understand the income tax issues of the will and/or trust. Many particular provisions have been implemented into US tax law to combat the practice of utilizing offshore firms to dodge tax on US citizens. However, because these restrictions are frequently broad in scope, they can have an impact on otherwise innocent US individuals who are beneficiaries of Canadian trusts.

When naming a US resident as a beneficiary of a Canadian trust, it’s important to remember that money accumulated within the trust is taxed at much higher rates when it’s eventually transferred to a US taxpayer. Even capital distributions from a trust might be taxed as regular income in the United States if not properly reported. Information reporting and income inclusion must be properly timed to avoid needless taxation or double taxation of payments to US beneficiaries, which requires proper trust structuring.

Furthermore, if a US person is listed as the executor of a will or the trustee of a trust, the trust will be subject to additional US income tax reporting responsibilities, which can make estate planning more difficult. When creating an estate plan or administering an estate, Canadian people with US beneficiaries should seek experienced cross-border tax advice.

 

Final note for top 3 tax considerations

Moving to the US as a Canadian can unravel a world full of tax issues surprises. Not to mention the stacks and stacks of tax rules and guidelines that must be kept on top of your mind to ensure that your move to the US is fully compliant with both the US and Canadian tax laws. Need some advice with your taxes as a Canadian living in the US?

 

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