Scott and Marie McFarland1 lived and worked in Canada for many years as well as in the U.S. for a time. They eventually retired to the United States, choosing the Sun Belt as their home. The McFarlands are not wealthy. However, they will gladly tell you that they feel rich. Below is a closer look at the particulars of their situation.
Summary and Takeaways
Cross-border lifestyles are increasingly common, as more people who are legal residents of Canada or the U.S. work remotely or own a second home in the other country over the border. Cross-border lifestyles can be very attractive, and offer numerous versatile benefits. But there are special considerations to factor in if you’re in that situation, regarding financial and tax planning – to help reduce paperwork and more importantly, reduce your tax liability.
Key Takeaways
- Some years, choosing between the U.S. and Canada as your declared legal residence may offer significant tax advantages, if you plan ahead for those.
- The same goes for healthcare. As a U.S. resident, you may qualify for subsidies to help cover the cost of health insurance while enjoying an American lifestyle.
- In the event of a major health problem, reestablishing Canadian residency in Ontario could make you eligible for the province’s free healthcare services without a waiting period.
- If you invest in a business based in the U.S. you may qualify for an E-2 visa, which allows you to live and work there but go back and forth to Canada with ease – without having to apply for a green card.
- Guidance from experts in cross-border law and financial and tax planning when contemplating a cross-border lifestyle is strongly recommended.
- They come and go from the U.S. as they please. Typically, they spend about seven months in the U.S. and about five in Canada. However, they do not have to watch the calendar to stay on-side with the border patrol.
- On the other hand, they may go through multi-year periods where they spend most of the year in Canada and never have to file a jot of paperwork with the U.S. government as a result. This is especially helpful when it comes their grandchildren. Scott and Marie can spend as much time as they wish in Canada and then return to life in the Sun Belt without waiting for permission from anyone.
- Some years, it may be more advantageous to be a U.S. or a Canadian resident for tax reasons. If they can plan ahead, they make sure they reside in the country that gives them the better tax benefit that year.
- They love the fact that they only file U.S. resident tax returns when they actually live there. No longer do they have to file two tax returns and struggle to manage foreign tax credits.
- If they ever decide to pull the plug on their relationship with the U.S., they will not be subject to the U.S. expatriation tax on their accumulated wealth.
- And they are not necessarily considered U.S. residents for estate tax purposes (domiciliaries) either. Insulating themselves from the brunt of U.S. estate tax required a little planning, but it wasn’t hard or expensive.
- As far as healthcare is concerned, the McFarlands carry U.S. health insurance for the years they reside there. The U.S. subsidizes some of the cost. If they encounter a major health problem, they reestablish Ontario residency and qualify for OHIP without a waiting period (under current rules).
The McFarlands think that the cost of U.S. health insurance (with a partial subsidy) is a reasonable price to pay for all of the other benefits their lifestyle offers. The funny thing is that the McFarlands are not dual citizens. And they are not green card holders either. The McFarlands found a different way—and for them, a better way—to live a cross-border lifestyle.
What the McFarlands did is obtain E-2 Treaty Investor visas, which are renewable every five years. As E-2 visa holders, the McFarlands are nonimmigrants (as opposed to immigrants aka green card holders) under U.S. immigration rules. They come and go from the country as they please and can qualify for U.S. tax residency if they are physically present in the U.S. for a sufficient amount of time. If they spend more time in Canada, they qualify for Canadian tax residency instead.
The E-2 visa is granted to an individual (and immediate family members) to direct their own investment in the United States. The key words here are direct and investment:
- Direct is interpreted loosely. The visa holder does not have to work in the business. Checking in on the business now and then should suffice.
- Investment means starting a business, purchasing a business, or becoming a partner with a controlling interest in a business. This is NOT the Immigrant Investor (green card) program which requires a commitment of USD $900,000 or $1.8 million. The E-2 sometimes requires less than USD $100,000.
Of course, no visa opportunity is perfect. In the E-2 context, the challenges are clear:
- You need to find the investment. The government does not have a catalogue of suitable investments. If you don’t have the experience or the contacts to identify an investment, often times an immigration lawyer can tap his/her own network of contacts. Certainly, business brokers can offer extensive assistance (and some have experience with investing in the E-2 context). In any case, an E visa lawyer should be involved in choosing the investment, if only to ensure that it likely meets the E-2 criteria.
- If the investment ends, so does your E-2 status. Always have a Plan B: a Canadian home to return to, another investment opportunity on which to base a new E-2, or pursue a different visa or green card.
- Your long-term financial plans should not depend on this money. Your E-2 investment is not a loan. Funds are “placed at risk” like every other true investment. But getting your money out is not like selling a stock. How you get your money out depends on the terms of your investment agreement and the good faith of the parties.
- The E-2 is conditioned on your health. An E-2 visa renewal may require a personal interview. (Who knows what the procedure will be five years from now?) Advanced age or poor health could raise doubts about your ability to “direct.” For this reason, do not plan to die of old age in the U.S. on an E-2 visa. Plan to spend your twilight years in Canada—or pursue a green card strategy to establish a different basis for life in the United States.
- Like an accountant, an E visa lawyer should become a fixture in your cross-border lifestyle. People do prepare their own E applications, but it is not recommended. There can be more to the preparation and planning than you will ever find online. Fortunately, there are lawyers who focus on E visa work, and they are easy to find.
After your visa is approved, an E visa lawyer should review your situation every year or two to confirm that you continue to meet the requirements and to set the stage for your five-year renewal application. While many E visa holders file their own renewal applications, some get peace of mind from having the E visa lawyer who knows the business prepare the renewal requests.
An E-2 visa is a unique foundation for a cross-border lifestyle. Certainly, it is useful for those who can’t qualify for a green card. But it also may be a near-perfect solution for Canadian globetrotters who just don’t want to be saddled with U.S. tax residency when they are living elsewhere. The E-2 offers a unique balance of flexibility (versus the green card) and certainty (versus a work visa) for a long-term cross-border lifestyle.
1 The McFarlands are a fictional composite.