Five things to know before moving from Canada to the U.S.
Start early, set up U.S. banking, understand the tax differences, get your investments in the right hands and apply for a Social Security number. The order matters.
Planning a move south of the border? The charms of the United States are obvious: career opportunities, a booming manufacturing industry, top-ranked universities and a warmer climate. No matter your reasons, moving to the U.S. from Canada can open up a world of possibilities. But navigating the complexities of such a big move can be daunting without proper planning or the support of a trusted cross-border financial advisor. Here are five things to consider to help make your transition as smooth and tax-efficient as possible.
1. Start planning your move as early as possible
It’s never too early. Start with organizing your paperwork, getting your visa approved and researching healthcare options in the U.S. Decide whether to purchase a private health insurance plan before leaving Canada in case you need medical care before your U.S. healthcare plan kicks in.
2. Set up your U.S. bank account
Before you leave Canada, set up a U.S.-based bank account so you can easily move money across the border, receive your paycheque if you’re moving for work, and pay for U.S. purchases without foreign transaction fees. Consider getting a U.S.-based credit card too, so you establish a credit rating in that country.
3. Understand the tax implications of your move
While the U.S. and Canada share more than a border, there are stark differences between the two, and nowhere more so than in tax law and securities regulation. For example, the U.S. doesn’t recognize Canada’s tax exemptions. If you own a primary residence in Canada and decide to sell it, you may have to pay taxes in the U.S. On the other hand, if you buy a primary residence in the U.S. and later sell it, only the first US$250,000 in capital gains may be tax exempt if you’re single, or US$500,000 if you’re married and filing jointly.
As you plan your move, consult a tax professional who specializes in cross-border taxation to assess the implications and determine your tax filing status in each country. A cross-border tax professional can give preliminary guidance on your options for retaining or severing Canadian tax residency, and on how Canadian taxation compares to that of the U.S. for your various income sources and assets.
4. Manage your investments with a cross-border financial advisor
Another difference lies in investment portfolios and how they are taxed. Pitfalls emerge when Canadians learn the hard way that they can’t transfer securities such as Canadian mutual funds to a U.S. financial institution. Some Canadian investments, such as Canadian ETFs, may create punitive U.S. tax consequences or filing complexities because the IRS may view them as passive foreign investment companies (PFICs).
This is where a cross-border financial advisor comes in. Licensed in both countries, they help you manage your assets across the border, transfer your wealth and maximize the tax-efficiency of your portfolio. On a multi-currency platform they work in both Canadian and U.S. currencies, so you can benefit from favourable exchange rates and invest in the currency of your choice.
5. Request a Social Security number
Before you arrive in the U.S., remember to apply for your Social Security number if you are legally permitted to work there. If not, apply for an Individual Taxpayer Identification Number (ITIN) for you and all family members, which you will need to file U.S. taxes and which some lenders accept in place of a Social Security number. An ITIN does not authorize work in the U.S. or qualify you for Social Security benefits. You can apply online from the U.S. and then go to a local Social Security office to provide your documentation.
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Chris is a cross-border financial advisor licensed in both Canada and the United States. He helps Americans moving to Canada and Canadians moving to the U.S. keep their retirement accounts intact and build one plan that covers both sides of the border. He writes for Cross Border Wealth in his personal capacity.
Disclosure: Chris writes in his personal capacity; his views do not represent any firm he is associated with. Cross Border Wealth does not provide advisory services. If you need advice, use the Get connected form and we will introduce you to a licensed professional.