U.S. Financial Institutions Closing Investment Accounts for Canadian Residents: Understanding the Trend and Its Implications

Imagine you’re a U.S. citizen or Green Card holder living in Canada, and you’ve just received the dreaded notice: your U.S.-based brokerage or custodian has decided they can no longer hold your taxable investment account or IRA because you live abroad. They’re giving you 60 days to transfer it elsewhere, or they will liquidate everything and provide you with a check.

Cue the panic—right?

No, just take a breath. Although this scenario is increasingly common, there are practical solutions. Here’s a breakdown of your options and considerations, compiled for you by Cardinal Point.

First, Why Is This Happening?

There are several reasons your U.S. financial institution no longer wants to hold your investment accounts:

1. Regulatory Landscape and the Foreign Account Tax Compliance Act (FATCA):Many U.S. financial institutions have been tightening restrictions on clients with foreign addresses due to risk management and compliance burdens such as FATCA. Maintaining accounts for U.S. persons abroad requires additional reporting, and many brokerages have simply chosen to avoid the complexity.
2. Securities Laws and Compliance Requirements: Both the financial institution and the investment advisor must have a securities license and be registered in the jurisdiction in which their client resides. Even if a client’s investment accounts are held in the U.S. at a U.S. financial institution, if that client resides in Canada, the firm holding or acting as a custodian for the account, as well as the individual or financial advisor rendering investment advice, must be registered in the Canadian Province where the client resides.  Unfortunately, most U.S.-based financial professionals are not registered to provide investment advice in Canada.
3. Tax Reporting Conforming to U.S. and Canadian Standards: While U.S. financial institutions generate annual tax documents and slips that conform to U.S. tax reporting standards, they do not provide the equivalent Canadian documentation needed for residents of Canada to file their Canadian taxes.

Solutions if You Have a Taxable (Non-Retirement) Investment Account

If your U.S. brokerage is closing your taxable brokerage account, your options include:

Transfer to Another U.S. Brokerage That Accepts Non-Residents

Some U.S. brokerages may still accept U.S. expats, though the list is shrinking. You’ll likely need:

• Proof of a valid Canadian mailing address in your name,
  • It is important that you report the address where you actually live, not an inaccurate location such as a relative’s address in the U.S. in an attempt to fool the authorities. State tax officials have caught on to that – and are catching people who use incorrect U.S. addresses. Then they send notices requiring that a state tax return be filed and state taxes be paid in full on investment income and realized gains earned in the account with the incorrect address.
• Proof of U.S. citizenship, and
• To speak directly to the U.S. brokerage and confirm that they do, indeed, still accept expat clients before initiating any transfers.

It is also possible to work with a qualified cross-border financial advisory firm, like Cardinal Point, which is dually licensed in both Canada and the U.S. as a registered investment advisor and specializes in holding U.S. taxable and qualified (retirement) accounts for U.S. expats. Cardinal Point has worked with U.S. custodians on this issue for more than12 years and has customized solutions for clients in this exact situation.  In addition to all other facets of financial and tax planning, Cardinal Point will take care of the account paperwork for you to continue holding your U.S. taxable investment accounts in the U.S. with full compliance.

Liquidate and Move the Funds to Canada

You could sell the holdings at the U.S. custodian and transfer the cash to a Canadian financial institution. However, this can potentially incur the following consequences:

• Capital gains tax in the U.S. (and potentially in Canada if you are already a Canadian tax resident),
• Currency exchange costs when converting from U.S. dollars to Canadian dollars, and
• Loss of tax deferral or growth potential.

Once the funds are in Canada, you can invest through a Canadian brokerage, but managing U.S. tax reporting becomes more complex, especially for mutual fund corporations considered PFICs (Passive Foreign Investment Companies), which can have punitive U.S. tax treatment and additional annual U.S. tax reporting.

Some investments, such as individual stocks and ETFs, can move in-kind (without immediate tax implications) from the U.S. custodian to a Canadian custodian. However, this can be very difficult to accomplish on your own, as it is uncommon and requires extensive coordination with both U.S. and Canadian custodians. Once they are moved, it also necessitates adjustments to the U.S. and Canadian dollar cost basis for that move plus all future transactions. Luckily, solving these problems for clients is what a cross-border financial advisory firm such as Cardinal Point specializes in, in addition to all other aspects of cross-border investment, financial, tax, insurance, and estate planning.

Solutions if you Have an IRA (Traditional or Roth)

Many U.S. custodians will not allow IRAs to be held by non-U.S. residents. Your options include:

Find a U.S. Custodian That Allows IRAs for Non-Residents

This is the cleanest option, but not all custodians will help.

Do NOT attempt to directly transfer an IRA to a Canadian RRSP – direct transfers are not allowed, and trigger a full distribution and adverse tax implications. An indirect transfer is allowed, however, and can be beneficial under certain circumstances after modeling out the U.S. and Canadian tax implications with a cross-border tax advisor. 

Take a Distribution (Not Ideal)

If no U.S. custodian will take your IRA, your current custodian may force a distribution, resulting in:

• Possible tax payable in the U.S.: Traditional IRA distributions are taxable; Roth IRAs are tax-free only if qualified,
• Possible 10% early withdrawal penalty if you’re under age 59½, and
• Possible tax payable in Canada: Depending on the type of IRA, whether or not you’re a Canadian tax resident, and whether or not you properly elected tax-free treatment for a Roth IRA with the Canada Revenue Agency, the withdrawal may also be taxable in Canada. The U.S.-Canada Tax Treaty can provide assistance to avoid double taxation, but you will pay the higher Canadian tax rate on the taxable distribution.

Work with a Cross-Border Financial Advisory Firm

Cardinal Point can continue holding your Traditional and Roth IRAs at a U.S. custodian.  Cardinal Point has worked with U.S. custodians on this issue for more than12 years and has created solutions that are customized for clients in this exact situation. Cardinal Point will take care of the account paperwork for you to properly continue holding your U.S. IRA(s) in the U.S. and will provide tax/financial/estate planning on future distributions from these IRAs to ensure you are paying the minimum required amount of tax and passing the maximum amount to your beneficiaries as possible.

What Can You Do Now?

1. Act Quickly – 60 days isn’t much time. Start calling alternative custodians or reach out to a cross-border financial advisory firm, like Cardinal Point, ASAP.
2. Get Professional Help – This is a tax and legal minefield. A cross-border planning firm such as Cardinal Point, can save you time, money, stress, and regret.
3. Don’t Leave Funds in Limbo – If your account is liquidated and you don’t transfer the assets, the custodian may send you a check, potentially triggering costly taxable events or complications with your Canadian bank.
4. Avoid PFIC Traps in Canada – If you move your investments to a Canadian brokerage, be mindful of Canadian mutual fund corporations that may be taxed harshly under U.S. rules.

Final Thoughts

The problem outlined above is frustrating, but certainly not insurmountable. The key is to be proactive and choose custodians and strategies that align with your cross-border status. The worst thing you can do is to ignore the notice from your U.S. brokerage or assume it’s not urgent.

Need help figuring out your next step? Consult a cross-border financial planning firm, like Cardinal Point, for experienced, qualified guidance to successfully navigate the ins and outs of U.S.-Canada investing.