Cross-Border Tax Residency Planning Strategies for Individuals, Entrepreneurs, and Fiduciaries

As more individuals and business owners straddle the Canada-U.S. border—whether for lifestyle, business, or retirement—questions of tax residency, domicile, and income sourcing have become central to smart financial planning. With the rise of remote work, increased M&A activity, and more aggressive tax enforcement on both sides of the border, cross-border clients must navigate a complex interplay between provincial, state, and federal rules.

This article outlines strategies to manage your residency status, mitigate state and provincial tax exposure, and plan for cross-border trust and business efficiency.

Domicile vs. Residency – Know the Difference in a Cross-Border Context

While “residency” often refers to where you live physically, “domicile” is the place you legally and permanently consider home. Domicile affects not just income taxes, but also estate, gift, and succession laws—especially relevant for Canadians owning U.S. assets or Americans moving north.

You can have many residences but only one domicile, and both Canadian provinces and U.S. states use a mix of subjective (intent) and objective (actions) criteria to determine it.

Why domicile matters for cross-border clients:

• Impacts U.S. estate tax exposure for Canadians with U.S. assets.
• Determines state taxation on U.S. source capital gains.
• Affects Canadian deemed disposition rules for emigrants.

How to Change Domicile—and Prove It

Moving across borders or between high- and low-tax jurisdictions (e.g., New York to Florida or Ontario to Alberta) requires more than just a change of address. Authorities scrutinize intent and behavior, especially before a liquidity event.

Key actions to establish a new domicile:

• Spend over 183 days per year in the new jurisdiction (especially in NY, CA, QC).
• Update driver’s license, voter registration, healthcare providers, and bank accounts.
• Sell or rent out your former primary residence.
• Redomicile trusts and update wills under the laws of your new province/state.
• Maintain detailed logs of travel and ties to both jurisdictions.

Cross-border complexity tip: Canadians becoming U.S. residents (e.g., green card holders or substantial presence test) may face an exit tax upon departure from Canada and worldwide U.S. tax upon arrival. Careful planning—before relocation—is essential.

Residency and M&A Planning

Whether you’re selling a U.S. or Canadian business, your residency at the time of sale could significantly affect how and where your capital gains are taxed.

Equity vs. Asset Sales:

• Equity Sale: Gain is often sourced to the seller’s domicile.
• Asset Sale: Gain can be allocated based on the business’s operational footprint.

Real-World Example:
A Canadian tech founder with a Florida home sells shares of a U.S. C-corp. If they are deemed domiciled in Florida for tax purposes, they may avoid U.S. state-level taxation entirely. If they are still domiciled in Ontario, provincial tax will apply, and the CRA may apply departure tax if residency changes are mishandled.

Residency Planning Checklist Before a Liquidity Event:

• Relocate at least one full tax year before the transaction.
• Review your organizational structure and consider whether restructuring into pass-through entities (e.g., LLCs, LPs, partnerships) once in the U.S. makes sense.
• Avoid business ties that trigger “unitary business” status in California or New York.
• Document non-residency clearly for state or provincial tax authorities.

U.S. and Canadian Trust Tax Residency

Trust residency rules are especially complex across borders, and they vary by jurisdiction. Some U.S. states, as well as Canada, may tax trusts based on:

• Trustee or beneficiary residency;
• Place of administration;
• Location of underlying property;
• Governing law of the trust document; and/or
• Tax residency of contributors to the trust.

Grantor Trusts (U.S.): Taxed to the grantor (often ignored for U.S. tax purposes).

Non-Grantor Trusts:

• Separate tax-paying entities;
• May face taxation by multiple U.S. states or Canada if not planned properly; and
• Face top U.S. federal tax rates at just ~$15,650 USD of taxable income in 2025.

Cross-border advisory tip: If a trust has U.S. trustees but Canadian beneficiaries (or vice versa), it may be taxable in both jurisdictions. Proper situs selection, decanting strategies, and professional trust companies with cross-border experience can help mitigate this.

Situs Selection and Decanting for Tax Efficiency

When creating or revising a trust, choosing the right jurisdiction (or situs) can save substantial income tax, especially for multi-generational trusts.

U.S. States Favorable for Trusts:

• South Dakota, Nevada, Alaska: No state income tax, strong asset protection, long-duration trusts.
• Delaware: Flexible decanting laws and directed trust statutes.

Key Nexus Triggers to Watch:

• Residency of beneficiaries (e.g., CA, NC, GA);
• Trustees’ location (e.g., AZ, MT); and
• Place of administration and situs of trust assets.

Use of Decanting:

Decanting allows assets to be transferred from one trust to another with better tax, asset protection, or administrative terms.

Planning uses:

• Isolate U.S. taxable beneficiaries from non-taxable ones.
• Change the situs from a high-tax jurisdiction to a no-tax state.
• Shift income to beneficiaries in lower brackets or jurisdictions.

Canada-U.S. Residency Arbitrage – Practical Tips

For Canadians with U.S. ties:

• U.S.-situs real estate, shares in U.S. corporations, and retirement plans may be subject to U.S. estate tax, even with a “modest” net worth.
• Use of cross-border trusts or Canadian corporations can mitigate exposure.
• CRA continues to assert residence based on ties, even if Canadian tax returns are no longer filed.

For U.S. citizens moving to Canada:

• Consider Roth conversion opportunities before triggering Canadian tax.
• Prepare for CRA taxation on worldwide income, including U.S. IRA and 401(k) distributions.
• U.S. tax filing obligations do not end, even after becoming a Canadian resident.

Proactive Residency Planning Is Essential

The cost of getting it wrong—double taxation, surprise capital gains assessments, or losing access to tax-favored treatment—can be high. The good news is that with advance planning, these risks can often be avoided.

Cardinal Point’s Cross-Border Residency Planning Best Practices:

• Start at least 12 months before a liquidity event or move.
• Clarify your intentions and demonstrate them with consistent actions.
• Coordinate legal, tax, and estate planning documents in both countries.
• Engage cross-border specialists to structure trusts and business interests effectively.

Ready to take the next step?

If you’re considering a move, a business exit, or estate planning across borders, contact a cross-border advisor at Cardinal Point to ensure your plan aligns with both U.S. and Canadian tax laws.