Three things every U.S. citizen should know before living in Canada
Investment reporting, your U.S. retirement accounts and the FBAR: the three issues that cause the most surprises for Americans making the move north.
Americans moving to Canada run into the same three issues again and again. Here are the three most important things to know in regards to taxes and financial planning, so you don’t end up paying excess taxes or incurring penalties due to a lack of planning and execution.
1. Investment reporting
You will be subject to stringent and challenging tax reporting requirements if you invest in Canadian mutual funds, ETFs or particular registered investment accounts that are commonplace for a Canadian citizen. Having the correct types of accounts and the correct types of investments is key to avoiding penalties and tax complications. As a U.S. person you always have to claim worldwide income, and foreign reporting, mostly known as the PFIC report, is something to be aware of. Do not fall into the trap of taking advice from a financial professional who does not understand cross-border issues. The good news is that staying onside with your reporting and tax filing does not have to be overly onerous if you have the right team in place.
2. Your IRA or U.S. registered retirement account
If you have an IRA or registered retirement account in the U.S., you run the risk of having that account frozen, or of the U.S.-based company asking you to cash out, which would subject you to tax and a penalty if you’re under 59½, or move it to another institution. There are many options to consider when planning what to do with these accounts. The key is to have this figured out before you move across the border. If you have already moved, deal with it now, before the account is frozen. A cross-border CPA or dual-licensed advisor can walk you through the options.
3. The FBAR
The Foreign Bank Account Report is something a cross-border accountant can help you with, but it is a report you must file every year with FinCEN, not the IRS, if the combined value of your non-U.S. financial accounts, including Canadian bank, investment and registered accounts, exceeded US$10,000 at any point in the year. It is due April 15, with an automatic extension to October 15. A cross-border accountant can prepare it.
Sources and further reading
- IRS Form 8621, Information Return by a Shareholder of a PFIC
- IRS, Report of Foreign Bank and Financial Accounts (FBAR)
- FinCEN BSA E-Filing System (where the FBAR is filed)
- IRS Form 8938, Statement of Specified Foreign Financial Assets (FATCA)
- IRS Topic 557, Additional tax on early distributions (the 10% tax before age 59½)
- CRA Income Tax Folio S5-F3-C1, Taxation of a Roth IRA
Related resources
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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.