I am moving from the USA to Canada. Can I open a taxable investment account in Canada?
The short answer is, “yes.” But don’t make a move without understanding the process.
A move to Canada can be quite daunting, especially when it comes to finances. If you have a family and/or have spent years accumulating wealth in the United States (in a variety of different accounts), then you may find yourself in a position of wondering, “What can I keep open? What must I close? What should I transfer to Canada? What are the tax implications? Who do I talk to about it all?!”
Those are all great questions! At Huston Wealth Management, we want to help make this process as smooth as possible for you. This article will give you some simple steps to take regarding your old or new taxable investment accounts.
Question 1: What should I do with my U.S. taxable (non-registered/non-retirement) investment accounts?
Step 1: Don’t rush to liquidate your U.S. investment accounts!
Once you move to Canada, most U.S. firms will not agree to hold your non-retirement accounts. This is because these firms are not registered in Canada. Thus, they may require you to liquidate and move your assets. This can be surprising and unnerving. You may have tried contacting other cross-border firms but found that you do not meet minimum requirements for your wealth.
If you are at your wits’ end, and accountants, friends, and firms are telling you to liquidate, don’t be too hasty. Liquidating your portfolio in the U.S. could trigger some hefty capital gains, which, in turn, could leave you with a rich tax bill from Uncle Sam.
Step 2: Consider a transfer of assets from your U.S. account to a Canadian account.
If you don’t want to liquidate your portfolio, Huston Wealth Management can help. As a part of Raymond James (USA) Ltd. (RJLU), Huston Wealth Management cannot hold your non-retirement accounts in the U.S., but we can facilitate a transfer of your assets to Canada and service your account here (with some exceptions – see the last section of this article).
**NOTE** You should be aware that the U.S. and Canada tax non-registered accounts differently. And when you move your account to the “Great White North,” you will want to be aware of your tax liabilities in both countries. That is where our tax professionals at RJLU come in. They specialize in cross-border wealth management and would love to help you have a smooth transition.
You can have one cross-border financial advisor for all your accounts in the U.S. and Canada. So don’t start liquidating everything and realizing capital gains just yet.
Question 2: How should I go about opening a Canadian investment account?
Step 1: Establish residency.
Before you can open a Canadian investment account, you must first move to Canada. Once you have arrived, Huston Wealth Management can establish an investment account for you and begin to transfer the assets from your U.S. account.
Step 2: If you are a U.S. citizen, report your Canadian account to the Internal Revenue Service (IRS) each year.
Be aware that as a U.S. Citizen, if your Canadian accounts amount to $10,000 or more, you will be required to report these accounts to the U.S. Internal Revenue Service each year. This reporting is done through foreign bank account reports (FBARs). Our tax professionals who specialize in cross-border tax issues can help you understand the reporting requirements.
Step 3: Talk with us about your cost basis.
The cost basis of your assets is one consideration to make when you move. Some of your positions may be held at a gain, and some at a loss. When you move to Canada, the Canada Revenue Agency (CRA) deems your cost basis to be the fair market value of your asset on the day that you move to Canada.
Our tax professionals would love to discuss the possible benefits of selling some positions before or after you move, depending on your tax liability.
Step 4: Get to know the difference between how capital gains are calculated in Canada vs. the U.S.
As you begin to work with Huston Wealth Management, you should know that Canada calculates capital gains with an “Average Cost Basis” only. This differs from the U.S. in two ways. First, there are no “short term” or “long term” capital gains. Second, there are no “tax lot” sales, such as “First in, First Out” (FIFO).
Though this structure simplifies the capital gains process, it may require a change in strategy, one that Huston Wealth management would love to accommodate!
Final Piece of Advice: Beware of certain types of investments/holdings in your U.S. and Canadian accounts.
You may find that you hold certain assets in your U.S. taxable (non-registered) account that cannot be transferred to your Canadian taxable account.
For example, if you hold mutual funds in your U.S. investment accounts (non-registered or registered), you will not be able to transfer these assets to a Canadian investment account. Thus, if you wish to move your investment account to Canada, you will be required to liquidate these positions. But before you do, please speak with our tax professionals for guidance.
Additionally, if you are a U.S. citizen or U.S. Green Card holder moving to Canada, holding Canadian mutual funds and ETFs can be tricky. The U.S. may view certain Canadian mutual funds and ETFs as “Passive Foreign Investment Companies” (PFICs). Thus, you may be liable for a greater tax burden holding PFICs than if you hold individual stocks.
But don’t let that invisible border scare you any longer. Reach out to us and we would be happy to help you start planning for your move up north!
Disclosure: The information above is from sources believed to be reliable, however, we cannot represent that it is accurate or complete and it should not be considered personal tax advice. We are not tax advisors and clients must seek independent advice from a competent professional advisor on tax-related matters before withdrawing from their U.S. retirement plan.
Disclosure: This material has been prepared by Dean Huston and expresses the opinions of the authors and not necessarily those of Raymond James Ltd. (RJL). Statistics, factual data and other information are from sources RJL believes to be reliable but their accuracy cannot be guaranteed. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. This newsletter is intended for distribution only in those jurisdictions where RJL and the author are registered. Securities-related products and services are offered through Raymond James Ltd., Member-Canadian Investor Protection Fund. Insurance products and services are offered through Raymond James Financial Planning Ltd., which is not a Member-Canadian Investor Protection Fund.
Raymond James (USA) Ltd. advisors may only conduct business with residents of the states and/or jurisdictions in which they are properly registered. Raymond James (USA) Ltd. is a member of FINRA/SIPC
