For Canadians looking to move to the U.S. permanently, one increasingly popular option is the EB-5 Immigrant Investor Program. This program, created by Congress in 1990, is known as the “million dollar green card” and offers a green card and a path to citizenship for an investment of between $500,000 and $1 million USD. Conditions apply, though. You must invest in a new commercial business that creates at least 10 full time jobs, the U.S. must be your country of principle residence, and in many cases, you must live near the business you’ve invested in and take an active role in its management. You’ll also have the U.S. government digging around in your personal finances and spend a substantial amount on administrative and legal fees. Cardinal Point Capital Management’s Terry Richie discusses the advantages and disadvantages of the EB-5 program with the Globe and Mail in this article.
Financial Planning for Canadians Moving to the U.S.
Did you leave your heart in San Francisco? Is the Big Apple calling your name? Perhaps you are bound for Austin, Texas, the “Silicon Valley of the South.” If the U.S. is your destination—and you plan to stay for a while—there are critical steps to take to ensure your short- and long-term financial wellbeing.
Canadians moving to the U.S. may view the similarities—language, customs, culture and even cuisine—and imagine a seamless move. What many people don’t realize is that, in terms of investments and taxation, the two countries are very different. As you plan your move, make sure to have a financial plan in place. Many people think of “financial planning” as something to do after having made one’s fortune. In fact, having your financial house in order makes sense no matter where you are in your life, and it’s especially important if you are preparing for a cross-border move.
Start where you are. First things first, take an inventory of your finances in Canada: your bank accounts, credit cards and savings accounts including: Registered Retirement Savings Plan (RRSP), Registered Retirement Income Fund (RRIF), and Tax-Free Savings Account (TFSA). The rules governing the use of these accounts are different for non-residents. For example, a non-resident’s contribution to a TFSA would be subject to a monthly penalty. Because these rules are complex, expert help can prevent you from simple, yet expensive mistakes.
Plan the transition. As soon as possible, apply for a Social Security number in the U.S. You will need this to work, open a bank account and even to apply for credit. On the topic of credit, find out whether your Canadian credit cards will charge you a fee on transactions made in the U.S. You may wish to apply—before you move—for a card provided by a company that does business in both Canada and the U.S.
Buying health insurance is another important part of the transition from living in Canada to living in the U.S. If you do not have employer-provided health benefits, you can shop for the coverage that best suits you and your family. Legally, you must have health coverage or face penalties (not to mention costs of care, which can be very high in the U.S.!).
Stay on top of things. There’s an old saying, “Out of sight, out of mind.” It’s up to you to keep your financial picture in focus—even when aspects of it are thousands of miles away. Working with a financial planner is the simplest way to keep track of your accounts and to stay informed of your tax liability. The right advisor will work with you to let you decide how often you want to be contacted. It’s better to hear about changes in policy and tax laws before they affect your finances, back home or in the U.S.
Financial security is a cornerstone of freedom. When you know that you have the best information available about how to handle the money you make, and have taken care to protect yourself from being taxed twice on the same income, you can enjoy the wealth you are working so hard to create. No one expects you to be an expert on one country’s tax laws, let alone two. At Cardinal Point Wealth Management, our cross-border expertise can help keep you in the know about your Canadian and U.S. tax liability and your investments. Our experience on both sides of the border lets us provide you with the information you need, for your big move and every move after that.
John McCord is the Director of Private Wealth Services at the Cardinal Point, a cross-border wealth management organization with offices in the United States and Canada. John specializes in providing Canada-U.S. cross-border financial, investment, tax, transition, and estate planning services.
This piece is for informational purposes only.
O Canada! A Very Brief Primer on Canadian Immigration and Citizenship
According to the most recent data from the Association for Canadian Studies in the United States, more than 11,000 Americans moved to Canada in 2008. While some Americans dream of such a move, others view it as an act of treason on the U.S. Regardless of your point of view, immigrating to Canada and pursuing Canadian citizenship can be confusing.
What are the basic, long-term options for living and working in Canada? Living year-round or working at any time in Canada requires either the proper permit or Canadian citizenship. In the long term, those who aren’t citizens should decide whether to seek a temporary work permit, permanent residence, or citizenship. Considerations include tax implications, cost of living, health care, and lifestyle issues.
A Cautionary Tale
We’ve seen too often how a lack of planning in this area can result in unfortunate consequences. Take this case study as an example. Our new client had accepted a teaching position at a Canadian college but his initial immigration strategy hadn’t addressed the work permit situation for his spouse. While he was able to work in Canada, his spouse was left at home in a new city and country because she was unable to work. The lack of family or support structure added to the strain, and within a year, the couple contacted us to assist with their transition back to the U.S.
Our couple illustrates the importance of planning early and working with a knowledgeable professional who can help design your Canadian immigration strategy from beginning to end and achieve your goal of attaining temporary or permanent residence or citizenship.
Status in Canada
Generally speaking, there are three categories of “status” in Canada:
- Temporary Residents: This category consists of anyone who is not a permanent resident or citizen, including all visitors (for a maximum of six months), foreign workers, and international students.
- Permanent Residents: Those in this category can work and study in Canada with no restrictions and also have the right to enter and stay in Canada indefinitely. The five sub-categories of permanent residents include: Family Members, Skilled Workers/Professionals and Investors, Entrepreneurs and Self-Employed Personas, Provincial Nominees, and Quebec-Selected Skilled Workers.
- Citizenship: In most cases, children who are born in Canada will be Canadian citizens, regardless of their parents’ status. Otherwise, one must become a permanent resident to be eligible to apply for Canadian citizenship. Canada does allow for dual citizenship, in which a person can be granted Canadian citizenship without having to give up his/her U.S. citizenship or passport.
Of course, the points above discuss Canadian status in the broadest of terms. The cross-border specialists at Cardinal Point Wealth Management can conduct a detailed analysis of your particular situation to help determine the best immigration strategy to achieve your needs and goals.
Terry Ritchie is the Director of Cross-Border Wealth Services at the Cardinal Point, a cross-border wealth management organization with offices in the United States and Canada. Terry has been providing Canada-U.S. cross-border financial, investment, tax, transition, and estate planning services to affluent families for over 25 years. He is active as an author, speaker and educator on international tax and financial planning matters. www.cardinalpointwealth.com
Covering Your Assets: Risk Management and Your Cross-Border Move
In a recent blog post, we looked at important issues to consider when making a cross-border transition to Canada or the U.S. We touched upon the need to review risk exposure to ensure your current risk management strategies remain appropriate and new strategies are implemented as needed.
Risks are a part of everyday life, but some risks can have a devasting impact on what you’ve worked so hard to accumulate over your lifetime. Events such as a sudden illness, a car accident, or the death or disability of a working spouse can lead to a severe reduction of your assets. But what specific questions should you ask to help ensure you’re protected? Here are a few to consider:
- When making a transition to the United States or Canada, what coverage will your current healthcare insurance provide? Will you be out of network? Will you need that coverage?
- If you’re an American transitioning to Canada, will Medicare cover you or are you eligible for Canada’s universal healthcare system? If you’re a Canadian moving to the U.S., can you keep your Canadian coverage or will you be eligible for the U.S. healthcare system, including Medicare? How will recent changes to U.S. healthcare affect your specific situation?
- Your life insurance coverage may be sufficient prior to your move, but what effect could the exchange rate have on any death benefits you’re paid after your move? Will your life insurance needs be higher or lower after your cross-border transition?
- The same issues that apply to life insurance also apply to disability insurance. Will your policy still pay if you make a cross-border transition?
- How will a cross-border move to the U.S. or Canada impact your auto and homeowner insurance coverage? What are the differences between U.S. and Canadian auto and home policies?
- What are the cross-border ramifications if you can no longer perform certain daily living activities and require skilled nursing care?
- As these questions show, making a cross-border transition brings with it the potential for new risk exposures. Will you be prepared?
Whether you’re planning a work-related move to Canada or seeking to adopt a “snowbird” lifestyle in the U.S., it’s always prudent to do the requisite planning ahead of time. The cross-border specialists at Cardinal Point Wealth Management can help you work through the specific areas of risk exposure when making a move to the U.S. or Canada.
Terry Ritchie is the Director of Cross-Border Wealth Services at the Cardinal Point, a cross-border wealth management organization with offices in the United States and Canada. Terry has been providing Canada-U.S. cross-border financial, investment, tax, transition, and estate planning services to affluent families for over 25 years. He is active as an author, speaker and educator on international tax and financial planning matters. www.cardinalpointwealth.com
Moving to the U.S.? Don’t Leave Your Canadian Investments Hanging
A frequent question we hear from Canadians thinking of a move to the U.S. is this: What will be the tax consequences for my Canadian investments?
Let’s look at a case study to see how this plays out. Meet Diane, a Canadian client who is moving to the U.S. for a job opportunity. As we help Diane plan with her cross-border transition, she has questions about what to do with her Canadian investments. Should she use her sister’s Canadian mailing address for her Canadian investment accounts? What are her tax obligations to the Canadian Revenue Agency (CRA) after she leaves Canada?
For starters, we recommend that Diane change her mailing address to her U.S. residence and not a Canadian relative’s address. Once she leaves Canada and sets up residential ties to the U.S., Diane is deemed a non-resident of Canada. As such, she must notify her Canadian financial firms of her non-residency status for tax purposes and also establish that her current country of residence is the U.S. This helps ensure that the proper amount of Canadian tax will be deducted from her investment earnings.
As for her Canadian tax obligations once she resides in the U.S., the CRA sums it up this way:
“After you leave Canada, you are a non-resident for income tax purposes provided you have severed your residential ties with Canada. As a non-resident, you pay tax on income you receive from sources in Canada. This applies in the year you leave Canada and for each year afterwards, provided you remain a non-resident for income tax purposes.”
Once she becomes a non-resident of Canada, Diane will pay tax on the Canadian income she receives, also known as the Part XIII tax. According to the CRA, the most common types of Canadian income subject to Part XIII tax are:
- dividends;
- rental and royalty payments;
- pension payments;
- old age security pension;
- Canada Pension Plan and Quebec Pension Plan benefits;
- retiring allowances;
- registered retirement savings plan payments;
- registered retirement income fund payments;
- annuity payments;
- management fees.
But what about interest income generated from Canadian holdings? Such interest is typically exempt from Canadian withholding tax if you’re a non-resident and the payer isn’t related to you. In Diane’s case, the Canadian institutions from whom she receives income must deduct tax from the income paid to her, generally at a non-resident tax rate of 25% on Canadian income, but this can vary according to the source of income. This deducted tax fulfills her tax obligation to CRA for this income, and it is not necessary to report the income by filing a Canadian tax return.
If you’re a non-resident of Canada and have concerns about the tax consequences for your Canadian investments, the cross-border experts at Cardinal Point Wealth Management are here to help.
Terry Ritchie is the Director of Cross-Border Wealth Services at the Cardinal Point, a cross-border wealth management organization with offices in the United States and Canada. Terry has been providing Canada-U.S. cross-border financial, investment, tax, transition, and estate planning services to affluent families for over 25 years. He is active as an author, speaker and educator on international tax and financial planning matters. www.cardinalpointwealth.com
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