“How do I move my financial life to another country?” It’s a question we hear from many clients as they begin making a cross-border transition. When you are making the move to the U.S., you want to transition your finances smoothly and seamlessly while saving time, headaches, and every dollar you possibly can.

Much like financial planning, transition planning is a process and not a transaction or an end in itself. And like financial planning, the most effective transition planning hinges on a clear understanding of what you want to achieve in terms of lifestyle both now and in the future.

One of our key roles as cross-border financial planners is to learn where you are trying to go (your goals and objectives) and then design a detailed plan to test the viability of your goals/objectives and ultimately get you to your destination. After all, without a flight plan, how can you know which direction to go?

One important area that should be considered when making a move across the border is education planning.  As a family you may have started a savings plan for you or your children’s education.  Registered Education Savings Plans (RESPs) are a popular savings vehicle in Canada for this goal due to available government grants, bonds and tax savings.  How are these accounts treated when one or both of the parties involved becomes a U.S. resident for tax purposes?

Subscriber (Owner) – The tax-sheltered status of an RESP only applies to Canadian tax residents.   With a move to the United States, income and capital gains within the account will now be reportable and taxable on the subscriber’s U.S. return.

IRS Tax Reporting – RESP accounts require annual disclosure on the subscriber’s U.S. tax return by one of two methods. The first is a school of thought that these are foreign trusts that require reporting on IRS forms 3520 and 3520-A, with income reported annually. The second method is to report the income annually on an IRS Schedule D and include a statement in the return indicating that the account is treated as a taxable brokerage account instead of a foreign trust.  Additional reporting may be required for the investments within the account. If you have already moved to the U.S. and filed a tax return, check with your accounting professional before deciding which of these options to use or before making any changes to your reporting.

It is possible to change the subscriber on an account to someone who is not impacted by these reporting requirements, but other factors relating to the Beneficiary and your contributions also need to be considered.

When a Beneficiary becomes a non-resident of Canada, contributions to the RESP are no longer allowed and the beneficiary is no longer eligible for government incentives.  If Canadian residency is re-established in the future, contributions can resume, and grants will again be paid, but the period the beneficiary was a non-resident does not qualify for accumulated grants.

Educational Assistance Payments (EAPs) are based on enrollment in qualified post-secondary studies or a specified educational program and

are comprised of earnings and any government incentives (grants, bonds).  A beneficiary must be a resident of Canada in order to receive the government incentive portion as part of the EAP, however, a non-resident can receive income earned within the account. An EAP may also be paid up to six-months after ceasing enrollment.   Thus beneficiaries qualify, in part, whether they remain a resident of Canada or become a tax resident of the United States.  When an EAP is made, The RESP promoter will issue a tax slip to the beneficiary, and the beneficiary will claim this on their personal tax return for the year of receipt.

If the beneficiary has completed their education, it may be possible to replace the beneficiary with one who can use the EAP government payments or investment earnings; however, if this is not an option the subscriber may need to close the account.

When an RESP is closed, the subscriber’s contributions can be withdrawn tax-free.  All grants and bonds remaining within the account must be returned to the government.  However, earnings can only be withdrawn (known as an Accumulated Income Payment, or AIP) if the account has been open for 10 years, the beneficiaries are at least 21 and not attending post-secondary education, AND, here’s the glitch, the subscriber is a resident of Canada.

If the RESP must be closed and the conditions for an AIP are not met, the remaining earnings in the account will be paid to a designated educational institution in Canada of your choosing.

If you are contemplating a move to the U.S. and have an RESP that has been open for greater than 10 years and beneficiaries that are over age 21, there are other options that may be available while you are still a tax resident of Canada.

The decision whether to keep your RESP open or close the account is as unique as your personal circumstances.  The knowledge and expertise of a cross-border planning professional can help you to determine what solution will work best for both the subscriber and beneficiary of the plan.  Please reach out to Cardinal Point to discuss how we can help you to make the choice that makes the most sense for you.

Canadians become permanent residents of the U.S. for many personal and professional reasons. Prior to a move, it’s important to be organized and understand that significant differences exist between Canada and the U.S. when it comes to cross-border financial planning and investment matters. The following actionable items should be considered when cross-border transition planning from Canada to the U.S.

1. Notification – You should send letters containing your updated address and residency information to your financial institutions such as brokerage firms, banks and life insurance companies.
2. Income Tax – A qualified team should review and analyze the tax implications of your pending move.
   • S. Filing Implications – Federal and state tax laws as well as tax rulings should be researched to optimize pre and post relocation tax planning strategies. It’s important to note that cross-border tax planning needs differ for Canadians living in California, Texas, Arizona and other states.
   • Brokerage Accounts – From a Canadian tax perspective, non-registered brokerage accounts will be “deemed disposed of” as of the date your exit from Canada takes place. Your holdings will be considered sold regardless of any transactions being completed. When possible, capital losses can offset capital gains on your Canadian tax return.

     From a U.S. tax perspective, your non-registered brokerage account holdings become taxable when you establish U.S. residency. However, a “deemed disposition” is not observed and your original cost basis carries over as a U.S. taxpayer. Therefore, it might be beneficial to liquidate some or all of your holdings prior to exiting Canada. Once you become a U.S. taxpayer, there is potential to offset realized capital gains with losses. U.S. taxpayers are eligible to claim $3,000 USD annually in capital losses against ordinary income (such as wages) when married filing jointly returns are prepared. Any remaining capital losses can be carried forward to future years without restriction. It’s a good idea to maintain investment account statements for U.S. tax purposes.

   • RRSPs and LIRAs – From a Canadian tax perspective, there is no “deemed disposition” upon exiting Canada. However, any lump-sum withdrawals from these accounts will be subject to a 25% withholding by the Canadian Revenue Agency or a 15% withholding when converted to a RRIF.

For U.S. tax purposes, registered accounts become fully taxable upon entering the U.S. However, they can continue to grow tax free in most circumstances until distributions are taken. A thoughtful strategy is to step-up the value of your Canadian RRSPs prior to departure by liquidating securities. In any event, you should maintain your statements for U.S. tax purposes.

3. RRSP Trading – Some U.S. states permit authorized trading on behalf of an RRSP owner even though the owner is a U.S. resident, however, the following criteria must be met.

   The Canadian broker-dealer must:

   • Be a Canadian resident.
   • Have no office or other physical presence in this state.
   • Only effect or attempt to effect transactions in securities:
     • With or for a person from Canada who is temporarily present in this state and with whom the Canadian broker-dealer had a bona fide business-client relationship before the person entered this state.
     • or
     • With or for a person from Canada who is present in this state and whose transactions are in a self-directed and tax-advantaged retirement plan in Canada with which the person is the holder or contributor.
   • Be a member in good standing of a self-regulatory organization or stock exchange in Canada.
   • Maintain provincial or territorial registrations and membership in a self-regulatory organization or stock exchange in good standing.
   • Not be in violation of the anti-fraud laws of the state in connection with any securities transactions therein.
4. Brokerage Account Trading – Canadian non-registered brokerage accounts should be closed and the proceeds transitioned to the U.S. Most Canadian-based registered advisors and investment firms are not legally licensed to oversee non-registered investment accounts on behalf of U.S. residents. Further, many U.S.-based registered advisors are not well versed in building out investment portfolios denominated in Canadian dollars. Ensure you seek a cross-border advisor with securities licenses in both Canada and the U.S. who are experienced in building integrated investment portfolios denominated in both currencies.
5. Consolidate Accounts – Managing Canadian and U.S. based accounts simultaneously is often complicated for many reasons. Account consolidation is one strategy to help mitigate those complications. Initiating new account paperwork and transfers prior to a move to the U.S. is worth considering. Doing so can ease administration burdens such as foreign account reporting and cross-border tax withholding requirements.
6. Automobile – Disposing of an automobile in Canada prior to a move is advisable for several reasons:
   • The speedometer and odometer are in kilometers. The cost to switch to miles is approximately $1,200 USD.
   • Canadian automobiles are subject to U.S. emission standards shortly after arrival in the U.S.
   • The typical registration requirement of a Canadian automobile is within 30 days of arrival to your new state of residence.
   • Inspections to verify ownership are often cumbersome.

   It’s helpful to register and insure your Canadian automobile within 30 days of transitioning to the U.S. This can be accomplished by forwarding a termination letter to your existing auto insurance company. Your Canadian registration should be returned to the issuer with notification of your U.S. residency.

7. Canada Health Care – It’s important to contact your Canadian health care provider and notify them that you are no longer a Canadian resident once your U.S. health care is available.
8. Driver’s License – Once a U.S. driver’s license is obtained, you can cancel your Canadian driver’s license and inform the issuer that you are no longer a resident of Canada. Another option is to allow the Canadian driver’s license to lapse when an expiration date is a short time away.
9. Memberships – It’s a good idea to cancel memberships with churches, clubs, professional associations, etc. All should be informed of your permanent relocation to the U.S. When possible, you can request a refund for unused membership dues.
10. Subscriptions – You should cancel all magazine and newspaper subscriptions as well as terminate safety deposit boxes.
11. Personal Items – It’s important to transition personal property, collectibles and or other valuables to the U.S. during your move or shortly after. It’s best not to permanently store items in Canada.
12. Estate Plan – A comprehensive estate plan including wills and POAs should be updated with a local attorney within your new state of residency. Canadian based estate planning documents are often not valid or useful for U.S. residents. There are certain Canadian documents such as health care directives and POAs that can be added to an overall Canada U.S. cross-border estate plan.
13. Canadian Exit Tax and US Tax Filings – Specific Canadian tax filings must to be completed by April 30^th following the year of exit. Any tax owed to Canada must be paid at this time. In addition, a U.S. return is due on April 15^th of the year following your entry to the U.S. It’s common to postpone the U.S. filing past April 15th by filing an extension. Please note that strict foreign account reporting requirements exist when filing U.S. returns.

As the preceding list shows, making a permanent move from Canada to the U.S. is a complicated undertaking and careful planning and preparation will be crucial to your success.  When it comes to moving your finances, mistakes in timing or missed deadlines can result in expensive tax or penalty .  Finding a good cross-border financial planner can help with the more complicated aspects of such a move and can go a long way towards making your transition to the U.S. a successful one.

As we approach the end of the year, it’s natural to take stock of how everything in our life is going: family, health, wealth and more. But when we reflect back, we may find that our wealth, at least that part which is tied to the stocks markets, probably hasn’t performed all that well in 2018.  The major Canadian and U.S. indexes are sharply negative for the year, a far cry from the strong 2017 returns. And a quick look at the rest of the world shows that most International Developed and Emerging stock markets have fallen, down 10% or more. Bonds have also had a below average year. With Central Banks hiking rates in both countries, bond prices have been under pressure from rising yields.

Yet these results don’t jive with the expectations coming into the year. In December 2017, Barron’s published their expert forecasts for 2018 returns in an article which ended: “So long as earnings are rising, rates are low, volatility is subdued, and every stock selloff is met with more buying, as happened again this past week, the bull will still rule over Wall Street.” While estimates varied, all 10 experts questioned for the article forecasted higher returns, with an average  gain of 7% on the S&P 500. And these forecasts came out before the U.S. corporate and personal tax cuts were passed at the end of the year.

Coming off a calm 2017 with solid returns around the globe, strong economies in North America, and tax cuts fueling companies’ bottom lines, what wasn’t to be excited about? In fact, 2017 was so tranquil, it was easy to get lulled to sleep thinking markets were a smooth escalator going up.

Yet at both the beginning and end of 2018, markets were impacted by worries of higher interest rates, increasing trade tensions, and doubts about the sustainability of phenomenal growth in the tech sector. Even as economies remain strong in North America, markets are forward looking and fears about a recession in the next 18 months have grown.

Those worries were reflected in day to day market performance over the course of the year.  As we can see in the chart , in 2017, investors in Canada and the U.S. saw 5 or fewer days with losses in excess of 1%, which is extremely low compared to historical norms. In 2018, though, with a couple of weeks of trading left in the year, we’ve already seen 26 days with a loss greater than 1%  in the U.S. and 16 such days in Canada.

Count of days in which Stock Market declined by more than 1%
Jan 1 ,2017 – Dec 7, 2018

Returns on most asset classes in 2017 were above historical averages, but in 2018 almost all will be below. By the time the year ends, most investors will look at 2018 and could see negative returns and think the year was a disappointment. While below average market returns are indeed disappointing, it’s rare that we ever do hit that exact average. But that’s what makes up those long-term averages. We witnessed positive returns of just 2.1% for the S&P 500 in 2011 and 1.4% in 2015, yet the average return over the 10 calendar years starting with a very poor 2008 was still 8.5%.

We can’t control what the market returns will be, but we can do several things to ensure we’re capturing as much of those returns as possible:

• Determine the right overall asset allocation for your long-term objectives and risk tolerance
• Create custom portfolios for you which blend stocks and bonds from a variety of distinct asset classes
• Utilize the most efficient implementation options possible
• Reduce company, sector and country risk by diversifying globally across thousands of companies
• Avoid overconfidence when markets are rising, and panicked selling when markets are falling
• Ensure that our financial planning projections are using prudent long-term estimates which account for up and down years along the way

In January we’ll have our quarterly recap out and will touch on the final numbers for 2018, and we’ll continue with ongoing communications throughout the year. If you have any questions, or topics you’d like to see us cover, don’t hesitate to ask.

Cardinal Point was founded with the idea of delivering an exceptional client experience and world class expertise to clients with Canada-U.S. cross-border financial planning considerations. Cardinal Point is dedicated to meeting the needs of our clients in the areas of capital preservation, tax planning, risk management, and delivery of long-term investment returns through varying economic and market cycles.

Recently we were honored to describe our process and the rationale for our phenomenal growth by sitting as a panelist on a Chartered Financial Analyst (CFA) San Francisco Society event on Cross Border Planning & Investing Implications on November 8^th. A CFA is a professional designation given by the CFA Institute that measures the competence and integrity of financial analysts. Candidates are required to pass three levels of exams covering areas such as accounting, economics, ethics, money management, and security analysis. Find out more about the CFA designation here.

At this event, Matt Carvalho, Chief Investment Officer for Cardinal Point, laid out what he thought has been crucial to our firm’s growth: delivering significant value to a specific group of clients in areas such as customized financial planning, tax services, risk management, immigration status planning, and investment management.

The event was well attended, with a standing room only crowd of over 40 professionals related to the CFA SF Society, an indication that the interest and need for cross border planning is growing.

Audience questions ran a wide gamut, but tended to focus around issues of currency conversion, licensing requirements, and financial planning / estate planning considerations for clients with assets and interests in multiple countries.

With a specialization in working with Canadian and US residents, Canadian and American expatriates, and those immigrating to Canada or the U.S. from abroad, we have  the unique ability to oversee and advance the goals of our clients wherever they call home.

Cardinal Point clients enjoy the assurance that comes with having a team of experienced, multidisciplinary professionals working  to build a comprehensive wealth plan tailored to their unique needs while focusing on creating long-term value for them.

Cross-border relocation can come with tough challenges, yet these are the issues that excite all employees at Cardinal Point. Solving these more complex financial planning questions is not only extremely helpful to our clients , but very satisfying to us. With unparalleled experience in the Canada/US space, we go to work everyday ready to work through all of the problems that impact our client’s lives.

https://cfa-sf.org/events/EventDetails.aspx?id=1049170&group=