A very common question at Cardinal Point for Americans moving to Canada is how to navigate around the CRA’s Five-year Deemed Disposition Rule. The Canada-U.S. tax treaty requires non-tax-deferred securities accounts to be taxed in the country of residence. Canada applies an exit tax on unrealized capital gains for Americans returning to the U.S. after minimum five years of tax residency in Canada. Given the increased information sharing between CRA and IRS, failure to file the appropriate forms will result in penalties. Correct filing is complicated, however, and the chance of erroneous reporting is high, in part because different cost bases are used in each country. In the U.S., original cost is always used; in Canada, the cost basis is the market value on the day the beneficial owner became a Canadian tax resident. A qualified cross-border tax advisor will carefully keep track of the dual cost bases. A Cardinal Point expert will go beyond, applying strategies such as tax-loss harvesting to reduce exit tax owed, an example of how Cardinal Point’s investment advice is tailored to your precise needs. Click through to our E-book for more detail.
