Taxpayers in transition between Canada and the U.S.
Moving cross-border: opportunities and consequences
Moving between countries presents unique tax-planning opportunities otherwise not available to most taxpayers. It may also present a higher-level of complexity than your existing advisor is able to navigate. Although Canadian and U.S. tax law have many similarities, it is important for the individual considering a move to Canada or the U.S. to understand how they are different since that is where both the problems and opportunities most often arise.
Be aware of the impact of different tax treatments
An effective tax plan for one country may attract tax issues and create unwanted tax results when the individual emigrates and becomes a resident of another country. For example, where a Canadian resident individual who owns a Canadian corporation or is a beneficiary of a Canadian trust moves to the U.S., the individual may find himself subject to U.S. anti-deferral rules that may have an adverse tax result. Conversely, U.S. persons moving to Canada may hold assets in entities that do not produce a tax-efficient result in Canada or hold investments that have preferential tax treatment in the U.S. but not in Canada. In addition, an individual’s inadvertent failure to comply with the disclosure requirements that exist in both countries may lead to substantial penalties if the individual is unaware of his or her tax filing obligations.
Planning a cross-border move
Ideally, planning for a move between Canada and the U.S. would start the year prior to the move to make any required pre-move changes without affecting tax obligations in the other country. The planning starts with a consultation to discuss the relevant facts associated with the move, including the individual’s assets, liabilities and earnings both before and after the move. Andersen will review these facts and apply the relevant tax laws and strategies related to them. At the end of the consultation, the strategies to pursue will be identified and a plan discussed on how to move forward. Even where the planning starts after the move, there may be an opportunity to create a better tax result.
The Importance of Tax Residency
Another issue that should be considered is how your move affects your tax residency, in Canada or the United States. Tax residency determines whether the CRA or the IRS has the power to tax you on your worldwide income or at least who gets to tax you first. There are significant tax differences between Canada and the U.S. that create tax opportunities and potential problems. Click here to watch our video Tax Residency for Canadians and Americans. The video explains the importance of tax residency and how it is determined.
How we can help with a cross-border move
Andersen’s tax professionals have extensive experience in advising clients who move between Canada and the U.S., either on a temporary or permanent basis. We also advise clients moving to other countries, but we limit our advice to their Canadian or U.S. tax implications, whichever is appropriate.
We also prepare Canadian and U.S. federal and state tax returns to make sure all the required tax filings are completed. The U.S. and Canadian tax filing requirements associated with the year of transition can be significant and create both opportunities and traps.
Contact Andersen for your pre-departure planning or assistance with your tax filing obligations in either the U.S. or Canada or both if you have already moved.