Q: Despite my fears about U.S. President Donald Trump’s next moves, I’m considering moving to the U.S. for work. How will that affect my taxes?
A: Relocating to the U.S. for work is a little more complicated than you might think. Tax implications are “one of the most overlooked and most critical aspects of relocating,” says Ksenia Tchern McCallum, lead immigration lawyer at Tchern McCallum Immigration Law.
Tchern McCallum is getting more calls than ever on how to gain entry to the U.S. — a lot of Canadian professionals are enticed by higher salaries and lower taxes. The Canada-U.S. tax treaty is meant to prevent double taxation, but without proper planning, Tchern McCallum says you may wind up being taxed by both countries, or have tax reporting issues or unexpected liabilities.
Make sure you understand whether this will be a temporary work assignment or a long-term relocation. Ask if the company will support your immigration process, including visa renewals or a future green card. “Not all employers are equipped, or willing, to do this,” Tchern McCallum says.
Jamie Golombek, managing director and head of tax and estate planning at CIBC Private Wealth, says those who leave Canada and establish a permanent home in another country will need to file a final tax return as of the departure date.
When you become a non-resident, you’re considered to have sold certain types of property (even if you haven’t) at fair market value and to have immediately reacquired them for the same amount. This is called a deemed disposition, Golombek says, “and you may have to report a capital gain and pay departure tax on that gain.”
Property could include non-registered investments (including mutual funds and stocks), paintings, and other personal property that’s gone up in value. Canadian real estate is excluded, but is considered taxable Canadian property — any future gain is still subject to Canadian capital gains tax even after you become a non-resident.
If you have a registered retirement savings plan (RRSP), you can keep it and only pay tax when you withdraw funds. But if you have a tax-free savings account (TFSA), Golombek says you might want to withdraw all the funds and close it prior to becoming a U.S. resident — the U.S. doesn’t recognize the tax-free status of the account, and there could be annual reporting requirements if you keep the TFSA. Unlike in Canada, a TFSA offers no tax shelter for U.S. taxpayers — all income and gains realized in a TFSA are taxable on your U.S. return.
Once you move, Golombek says, you’ll likely be subject to the full U.S. tax system, which generally taxes worldwide income. Compensation from your U.S. employer will also likely be subject to U.S. Social Security and Medicare taxes. “Be sure to seek independent tax advice from a qualified U.S. tax adviser prior to the move to fully understand your new tax obligations,” he advises.
Tchern McCallum also recommends speaking with an immigration lawyer. “Immigration determines how you can enter and stay in the U.S., while tax planning determines how you structure your life once you’re there,” she explains.
A lot of Canadians who relocate to the U.S. assume they can figure it out after securing a job or starting a business, “but immigration strategy should actually guide those decisions, not follow them,” Tchern McCallum says.
A consultation with an immigration lawyer who can assess your background, career, business interests and family situation, and then map out the most viable pathways to relocating, can help you avoid costly mistakes.
“The most successful transitions happen when people approach it holistically: immigration strategy, tax planning, career or business planning, and family considerations all working together.”
Money Coach is a biweekly feature that helps Canadians find helpful solutions to personal finance challenges. If you have a question, email Lora at [email protected].
