Should You Move Your US Taxable Investment Accounts to Canada when Becoming a Canadian Resident?

Written by Tiffany Woodfield, Portfolio Manager,  CIM® CRPC®

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If you’ve become a Canadian resident or are in the process of working of becoming a Canadian resident, you may be wondering if you need to move all your investments to Canada and how taxes will work.

As a Canadian resident, you may need to report certain foreign financial assets to the CRA, which includes U.S. taxable investment accounts.  This reporting can be very cumbersome and costly if your investments are still held in an account held in the US.  It is likely much easier and may cost less in accounting fees if your US investments are held with a Canadian wealth management firm. You are also probably less likely to make errors if you work with a Canadian firm that understands the Canadian and US sides and can produce the reporting documents for you.

Here’s what Canadian cross-border wealth management firms will do for you:

#1 TRACKING THE COST BASIS

A cross-border wealth management firm will generally track the cost base for Canadian purposes for your Canadian tax return.  And they will generally also track the cost base for US tax returns.

The cost base is the price at which the government recognizes you purchased a share. When you move to Canada your cost base will be deemed to be the fair market value of the share on the day that you become a resident. Canada also differs from the U.S. as the cost base is calculated using the weighted average method versus in the US FIFO is often used.  Thus, leaving investments in a US account means you have to track these cost bases separately for Canadian purposes. If this isn’t done correctly you may end up underpaying or overpaying taxes every time you sell an investment.

Having a professional track the cost base of all your investments saves you and your accountant time. It also saves you money and gives you peace of mind because you know it has been done correctly and you don’t have to worry about it.

#2 PRODUCE YOUR T1135s FOREIGN INCOME VERIFICATION STATEMENT

Most Canadian investment firms will automatically produce a report that can be used by you or your accountant to prepare your T1135 for the CRA to report your foreign investment property.  If you keep taxable investment accounts in the U.S. you will have to track each holding manually meaning this T1135 form becomes a much bigger nuisance (and cost).

*a T1135 is required if you own specified foreign property costing more than $100,000 CAD. See link below for more information on what is specified foreign property.

https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/information-been-moved/foreign-reporting/foreign-income-verification-statement.html

#3 OPTIMIZE INVESTMENTS SO YOU DON’T OVERPAY TAX IN CANADA

If you leave your taxable investment account in the US, you likely won’t have access to investments that are treated favourably for Canadian taxation. In other words, you may not be able to be invested in a way that allows you to pay less tax in Canada, which should likely be your aim since the taxation here is usually higher than in the US. The reason you may not have an optimal investment mix for Canada is that your US advisor likely won’t be an expert in the Canadian investment market unless they are a cross-border advisor. 

For example, if you keep everything in the US in a taxable investment account, all dividends from US stocks are taxed in Canada as foreign income, which is just like regular income.  You would be missing out on dividend tax credits that can save you from 5% to 30% of tax on each dividend from a Canadian corporation.

If you were to sell your investments in a taxable investment account in the US, the capital gains from a US stock receive the same treatment as capital gains when you sell a Canadian stock. However, it will take significantly more work to figure out the cost base because it is different in both countries.

The key is to have an advisor who understands the tax impact to help you decide where to invest with the goal being to optimize after tax earnings.  Having a firm that tracks the two cost bases will also save you time and money.

If you’re planning on creating long-term income streams from your investments, then leaving them in the US in taxable investment accounts is not an advisable route. Instead, it’s important to work with a cross-border financial advisor and cross-border accountant who will help you with every aspect of your financial transition and ensure you meet your long-term financial and legacy goals.

Next Steps

If you’re planning on moving to Canada and need assistance with moving your investments, estate planning, and portfolio management, please get in touch. At SWAN Wealth we specialize in cross-border financial planning and wealth management.

More Cross-Border Financial Planning Articles & Guides

If you’re planning a cross-border move, these articles and guides will help you simplify your move and make sure you’ve got everything covered.

Cross-Border Estate Planning Guide

Roth IRA Canada: How to Manage Your Investments Across the Border

The Ultimate Financial Planning Resource for Dual Citizens or Green Card Holders Living in Canada

401k in Canada - How to Stay Onside with the IRS and Avoid a Large Tax Bill

Retiring to Canada - A Financial Planning Guide

Financial and Tax Planning for US Citizens Living in Canada

Canadian RRSP Facts for Dual Citizens, Expats and Canadians

About the Author

Tiffany Woodfield is a Portfolio Manager, and the co-founder of SWAN Wealth Management, along with her husband, John Woodfield. Tiffany specializes in advising clients who live both in Canada and the United States and want to simplify their cross-border financial plan, move their assets across the border, and optimize their investments so they can minimize their tax burden. Together Tiffany and John Woodfield help their clients simplify their cross-border finances and create long-term revenue streams that will keep their assets safe whether they live in Canada or the US.

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Information in this article is from sources believed to be reliable, however, we cannot represent that it is accurate or complete.  It is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell securities.  The views are those of the author, SWAN Wealth Management, and not necessarily those of Raymond James Ltd.  Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decision.  Raymond James Ltd. is a Member - Canadian Investor Protection Fund. Raymond James (USA) Ltd., member FINRA/SIPC. Raymond James (USA) Ltd. (RJLU) advisors may only conduct business with residents of the states and/or jurisdictions for which they are properly registered.