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Moving Across the Border and Leaving Your Aging Parents Behind

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Moving from one country to another, whether for work, retirement, or any other reason, often means leaving close family and friends behind. This decision can take on a special significance when those family members are your aging parents.

The growth of the U.S. population age 65 and older exceeds that of the total population and those under the age of 651. Over the next 20 years, Canada’s senior population — those age 65 and older — is expected to grow by 68 percent2.

As we all get older, the dynamics of our relationships with our parents change in many ways. One significant change is the level of dependency on their adult children that many parents may begin to have. This can take many forms, but whether it is help with groceries or medication reminders, lending assistance is generally more complex when you live farther away.

Moving Boxes

When you are first thinking about a major move, it’s important to consider whether a parent or other family member has delegated power to you within a Power of Attorney for Personal Care or a Power of Attorney for Property (or other similar documents, which vary by jurisdiction).  Being an attorney for property or personal care means that in the event that the person is unable to make their own care or financial decisions, you have been named as their choice to do so.

You would likely have been chosen based on family dynamics at the time the documents were prepared. However, this should be revisited prior to a move to ensure that the person who is currently the most appropriate choice is named and that person can continue to act in their named capacity. If the designated attorney doesn’t live nearby, personal care decisions can be difficult to make. If the named attorney does not live in the same jurisdiction as the parent, financial institutions may be unable or unwilling to take instructions.

Additional tax reporting on the part of the named attorney may also be required in the event of a cross-border move. Generally, appointments within a will should be reviewed as part of an overall estate plan discussion. Where possible, schedule a family discussion about these matters ahead of your move. If changes are not made before a parent’s condition deteriorates, it will be difficult, if not impossible, to make amendments or appoint a new attorney. Of course, if your parents don’t have these documents already in place, they should be strongly encouraged to have them drawn up. Otherwise, by the time the attorney is required to act, it is too late to do so.

Whether named as an attorney or not, most of us have a strong interest in seeing our parents live their best life possible. In most cases, the aging process means that there are changes in need and ability that can either creep up gradually or very suddenly in the event of an adverse health situation.

Keep in mind that your parents are adults with a lifetime of caring for themselves and making their own decisions. Their identity and self-respect may center on their role as parents and adults. If they feel they are losing control to others, they may resent and resist what they may see as efforts to rob them of their independence. There are no easy solutions, but open communication and allowing them look after themselves and make their own decisions, to the extent possible, is important.

Over time, and at different ages, most people will experience some decline in physical and/or cognitive capability. Staying in close contact with your parents may make it easier to become aware of these changes.  However, bear in mind that if changes occur gradually, they can actually be difficult to notice unless you are making a conscious effort to do so. It can also be helpful to stay in touch with local family members or friends who see your parents more often and may have somewhat different perceptions than you have at a distance.

These physical/cognitive declines in capability, as well as your parents’ responses to them, will dictate what type of help they need and will welcome, or at least accept. The particular combination of needs will develop over time and will be as individual as your parents are, based on their abilities and lifestyle. There could be difficulties keeping up with what is required for day-to-day life: housework, meal preparation, yard work, or paying bills on time. It could be that personal care will become an issue where support is required for grooming, dressing, medication, and other personal tasks. They may need support in running errands and attending appointments, even to the extent that they are no longer safe drivers. Modifications to the home might be needed such as grab bars or adjustments like removing rugs and other trip hazards. There may also be emotional support required by the parents whose lives are changing and by those providing primary care.

If you are the property attorney and working from afar, preparation is key. Set up online access where possible to facilitate future activity such as access to financial statements, medical records, and tax receipts. This may be easier to set up when you are local to your parents rather than at home across the border. Having the Power of Attorney document accepted by your parents’ institutions may require an in person visit as well, so contact the institution to determine what will be needed. This is a priority for critical providers such as the bank and insurance companies.

If your parents need help paying bills, setting up payments to run automatically, rather than requiring manual activity, will reduce the risk of missed payments as well as the amount of work required. Consolidation of accounts such as investment accounts or credit cards, where possible, will simplify their financial situation as well.

Create a place to store important information such as your parents’ SSNs, bank account and insurance policy details, and health card numbers so you have them handy as needed.  Include a list of payments being made manually and those that require periodic activity. It may be helpful to have copies of documents such as deeds, loan documents, investment statements, and insurance policy statements.

As needs increase over time, it becomes essential that providing support is a team effort consisting of local family members or friends, distant family members, and local community support services. It’s ideal to start the team approach early to avoid crisis situations such as preventable falls, dangerous neglect of health needs, or emotional burnout. If possible, reach out to your parents’ neighbors and exchange information, encouraging them to contact you if they have any concerns.

The family doctor is a key member of the team, providing an objective view of the situation.  Ensure that the Personal Care Attorney document is on file with the doctor and any specialists. Your parents’ doctor should also be able to point you in the direction of available community services. An assessment of your parents’ needs, to determine whether they qualify for any free or inexpensive support, may be available. If so, take advantage of that opportunity. Keep in mind that reassessment should be made periodically as their ability to manage their life independently changes over time. An assessment of the home environment with recommendations to improve safety and comfort is also valuable if this is offered by community services in their area.

Depending on financial resources, a wide range of services are likely available for both household and personal help. Starting to engage help early, when the help required is less invasive (such as yard work rather than meal preparation), may make it easier for independent-minded parents to accept.

Whether paid help is accessible or not, family members near and far need to work as a team, contributing what they are able to the parents’ care to avoid overburdening any one person. Anyone who offers to help should be given something to do, making them part of the team as needs evolve. This can include financial, logistical, and emotional support that may be easier to provide from afar in addition to tasks that must be done in person.

As much as it takes a village to raise a child, it takes a community of people working together to support family members who are no longer able to live as independently as they once did. We encourage you to work with your family and within your parents’ community to ensure that they continue to live well as their life evolves.

Through our financial planning process, Cardinal Point assists clients and their families by reviewing estate plans, including appointments in place, and outlining strategies to assist all parties.

1 https://www.census.gov/library/stories/2018/10/snapshot-fast-growing-us-older-population.html

2 https://www.cihi.ca/en/infographic-canadas-seniors-population-outlook-uncharted-territory

Options for your CAD Non-registered assets when moving to and/or living in the U.S

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The strong U.S. dollar has created new challenges for those moving to the United States from Canada—but understanding these challenges, and your options, can help you to navigate the financial transition as smoothly as possible.

canadiandollarHere’s the background. The Canadian dollar is currently valued around 0.80 versus the U.S. dollar, a big departure of 0.90 to 0.95 seen in the summer of 2014. With the currencies so closely valued in the past, many individuals elected to convert their bank and non-registered (taxable) investment-account funds to U.S. dollars, and move them to a U.S. bank or custodian.

After all, if you live in the United States and your living expenses are denominated in U.S. dollars, having much of your liquid net-worth in the local currency makes sense. Furthermore, converting and moving Canadian non-registered accounts to the United States simplifies tax and foreign-account reporting requirements. It also provides for better investment opportunities, including those that are more tax efficient. And it helps to simplify your financial and estate planning.

A Canadian dollar at 0.80 complicates things, however, as most clients naturally do not wish to convert funds at a 20% discount. So let’s look at the options available to individuals or families who do not want to convert their non-registered accounts to U.S. dollars.

OPTION 1: Leaving your Canadian investment accounts in Canada
If you work with a Canadian financial advisor, chances are they are not registered to provide investment or financial planning advice to a U.S. resident.

A financial advisor must always be licensed in the jurisdiction in which a client lives, regardless of the client’s citizenship or the country in which the assets reside. Thus, once you become a resident of the United States and ask your advisor to update your mailing address on file to your new U.S. address (never leave your old Canadian address on file: see this related article), one of three things will likely happen:

  1. Your advisor will inform you that they are no longer able to provide investment advisory services to your non-registered accounts, and that you must work with someone who is able to do so;
  2. Your advisor will explain that you can keep your accounts on the platform, but that they will be frozen and that no further trading or rebalancing can take place;
  3. Your advisor will explain that they are registered in the United States and can continue to oversee all investment-management services in your accounts.

To reiterate, most Canadian advisors are not registered in the United States. So the mostly likely scenarios are numbers one and two. In the event that your advisor fits the third scenario, you will want to make sure that their services and expertise extend beyond just providing investment management.

For example, when moving to, and/or living in the United States, clients face a host of cross-border planning complexities. A true cross-border advisor will help construct an integrated Canada-U.S. cross-border financial plan that addresses tax and estate planning matters in addition the management of your investment assets.

Now, if you decide to leave your Canadian non-registered accounts in Canada under one of the first two scenarios, there are number of important points to consider.

  • Drawbacks of Canadian funds. Canadian-traded mutual funds and exchange-traded funds (ETFs) are considered “not registered for sale” to U.S. residents. Even more importantly, they are likely to be considered Passive Foreign Investment Companies (PFIC). Earnings and dividends distributed by such vehicles are subject to the highest marginal tax rates on your U.S. income tax return. Download our whitepaper on PFICs  for further information.
  • Accounting hurdles. Canadian custodians do a poor job conforming to U.S. tax reporting requirements. For example, many do not prepare year-end tax reports that show long-term versus short-term capital gains. These reports are required if you are a U.S. resident. Further, many of the tax reporting forms Canadian custodians provide are denominated in Canadian dollars, which means your accountant will have to convert all taxable and reportable transactions to U.S. dollars when you file your annual U.S. tax returns. This additional work by your accountant can increase the likelihood of errors and lead to higher accounting and tax-preparation cost.
  • The Conversion Window. If your goal remains to convert your funds to U.S. dollars once the exchange rate improves, make sure the investment strategy put in place will accommodate a future currency conversion. For example, make sure you are not locked into investment products that must be held for a certain period of time. Also, make sure your investment accounts are not invested in volatile or speculative securities that are subject to sharp market swings. It would be unfortunate if, when exchange rates became attractive, your Canadian-dollar investment holdings were sitting at a loss due to poor market performance.
  • Tax-aware investing. Make sure your advisor is managing your account under an investment mandate that reflects your U.S. tax residency. As mentioned earlier, U.S. tax residents are subject to long-term and short-term capital gains rates. If you sell an asset that has been held for one year or less, any profit is considered a short-term capital gain, and is taxed at your ordinary income rate (up to 39.6%). If you sell an asset held longer than one year, any profit you make is considered a long-term capital gain, and is typically taxed at a preferable rate (15% or 20%). In Canada, there is no such thing as long- or short-term capital gain. Canada has just one capital gains rate, and Canadian portfolio managers are trained to oversee client accounts under this standard. Also, there are different types of investment securities, such as Canadian preferred shares, that are attractive investments from a Canadian tax standpoint but not from a U.S. tax standpoint. It is always in your best interest to confirm that the Canadian money manager or advisor can customize the management style of your portfolio to adhere to U.S. tax rules.
  • Reporting requirements. You will be subject to extra foreign account reporting requirements by the Internal Revenue Service. Because these accounts are domiciled outside of the United States, the IRS will require you to report specific information about them (account number, year-end value, highest market value in the tax year, etc.) on a form called the FinCEN Report 114. Additionally, you might likely have to file IRS Form 8938 – Statement of Specified Foreign Financial Assets as part of your Form 1040 filing as well. These increased reporting requirements are time-consuming and will likely lead to increased tax preparation costs.

Leaving your Canadian-dollar taxable or non-registered accounts in Canada once you become a U.S. resident can be done under limited scenarios. But in light of the considerations above, it certainly is not ideal.

Option 2: Moving your Non-Registered Investment Account to the United States
Moving your Canadian-dollar investment accounts to the United States will simplify financial and estate-planning initiatives, and will streamline U.S. tax reporting. But you still will face challenges. For one, most U.S.-based financial advisors will automatically want you to convert your Canadian-dollar accounts to U.S.-dollar accounts—which, of course, contradicts the goal of maintaining your holdings in Canadian dollars. The main reason U.S.-based advisors will recommend this is that their firm or its custodian does not offer multi-currency accounts. The only currency option they provide for investments is U.S. dollars. It is rare for investment firms to offer Canadian dollar-denominated accounts because there is little demand for them in the United States.

Those investment advisors that do offer multi-currency accounts may not know the Canadian investment market well enough to construct a proper investment portfolio. It is one thing to be able to open a Canadian-dollar-denominated account on behalf of a client. It’s another to be a financial advisor or portfolio manager with the knowledge base and training to build Canadian-based investment portfolios using Canadian-traded securities.

All too often, clients are left holding their Canadian-dollar investment account in cash because they cannot find a qualified U.S.-based investment manager to invest the assets.

The Cardinal Point Difference: Cross-border investment management
At Cardinal Point, we are registered to provide investment management and financial planning services in both Canada and the United States, without any restrictions or limitations. For clients who have investment accounts in both countries (RRSPs, Non-registered, IRAs, 401ks, Trusts etc.), we are able to construct integrated cross-border portfolios customized to the investor’s risk tolerance, needs and goals.

If you are an individual living in and/or moving to the United States and do not want to convert Canadian-dollar, non-registered assets to U.S. dollars, our experienced Canada-U.S. portfolio management team can help. We have the ability to invest your Canadian-dollar accounts on a U.S. custodial platform. Partnering with Cardinal Point to oversee the management of your Canadian-dollar non-registered accounts brings the following benefits:

  • Proper and customized U.S. tax reporting on Canadian-dollar investment assets
  • Multi-currency investment accounts supported by an investment team that provides Canadian-dollar and U.S. dollar asset management services
  • Flexible foreign exchange services
  • Understanding of U.S. tax management strategies on Canadian-dollar investment accounts
  • Additional cross-border financial, tax and estate planning expertise
    Please contact Cardinal Point to discuss your cross-border investment management and financial planning needs.

Jeff Sheldon is a co-founder and principal at Cardinal Point, a cross-border wealth management organization with offices in the United States and Canada. 

Am I a U.S. tax resident?

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Most Canadians who move to the U.S. have a good understanding of their immigration residency status. However, many do struggle to determine their residency status for U.S. income tax purposes.

While it is common knowledge that U.S. citizens and green card holders are responsible for filing U.S. tax returns, most people who move to the U.S. on a non-resident visa – such as a TN, E1 or E2, O-1, L-1 – are unfamiliar with the U.S. tax residency rules that can subject them to U.S. taxation on their worldwide income.

This is not surprising given that the definition of a resident for U.S. tax purposes is mutually exclusive of a U.S. resident for immigration purposes.

As a result, a non-resident for U.S. immigration purposes, can in fact be a U.S. tax resident who is subject to U.S. taxation on their worldwide income. On the other hand, a non-resident for U.S. tax purposes is subject to U.S. taxation only on their U.S. source income.

To assist our Canadian clients navigate the complicated U.S. tax residency rules, we have prepared the following summary of the most common questions Canadians have when it comes to lodging a U.S. tax return:

How Do I Become A U.S. Tax Resident?
Simply put, if you are physically present in the U.S. for at least 183 days in one calendar year. You can also be considered a resident under the Substantial Presence Test (SPT) if you spend, based on a special formula, at least 183 days in the U.S. during the past three calendar years.

For Canadians who like to visit the U.S. for cross-border shopping, beware because even those short day trips south of the border count as a full day for purposes of the 183 day threshold.

Conversely, a Canadian who is never physically present in the U.S. for more than 120 days in each calendar year will not qualify as a U.S. tax resident.

What Happens if I Become A U.S. Tax Resident?
Since most Canadians moving to the U.S. for work on temporary visas are unlikely to spend less than 183 days in the U.S., they qualify to be taxed as U.S. residents.

Although special rules beyond the scope of this article apply to a first year U.S. tax resident, a U.S. taxpayer lodges a Form 1040 and reports all their worldwide income, including all investment income, capital gains, rental income from non-U.S. rental properties and foreign pension income.

Is There A Way To Avoid Being Treated As A U.S. Tax Resident?
If a Canadian working in the U.S. on a temporary visa qualifies as a non-resident taxpayer, then they lodge a Form 1040NR and generally only pay U.S. income tax on wages earned while working in the U.S.

However, if you qualify as a U.S. tax taxpayer, the following exemptions will allow you to lodge a U.S. return as a non-resident:

1) Closer Connection Exception (CCE)
A Canadian who meets the SPT may avoid lodging a return as a U.S. resident by filing Form 8840.

To qualify to file the Form 8840, one must meet all the following criteria:

  1. Have a “tax home” (usually where your family, permanent home and personal belongings are located) and a closer connection to Canada
  2. Be physically present in the U.S. for under 183 days in the current calendar year; and,
  3. File form 8840 to indicate this connection on a timely basis (filing this form late may cause you to be ineligible to claim the CCE)

2) Non-Residency Under The Treaty
In the event a Canadian working in the U.S. on a temporary work visa is physically present in the U.S. for at least 183 days in a single calendar year, it is still possible to avoid U.S. residency by filing a Form 1040NR with a Form 8833 treaty election.

Generally, a treaty election is used when a taxpayer is considered a tax resident of both the U.S. and Canada. In the case where a taxpayer is a simultaneous resident of both the U.S. and Canada, the treaty acts as a tiebreaker to determine which country has the right to tax the taxpayer as a resident.

The U.S.-Canada tax treaty contains a provision that allows a U.S. taxpayer to be treated as a Canadian tax resident, and hence a U.S. non-resident, if Canada is their permanent home.

If a taxpayer has a permanent home in the U.S. and Canada, then it’s necessary to look at where a taxpayer maintains their center of vital interests, their habitual abode and their citizenship to break the tie.

Nevertheless, a person who uses the treaty to be taxed as a U.S. non-resident is still considered a U.S. tax resident for other filing purposes. As such, Canadians need to report their financial accounts and interests in foreign corporations, trusts and partnerships to the IRS on the following forms:

  • Foreign Bank Accounts (FinCen 114)
  • Foreign Corporations (5471)
  • Foreign Partnerships (8865)
  • Foreign Trusts (3520/A)

Tax filers beware as fees to prepare these foreign compliance forms can be costly because they are complicated and time consuming.

Does California Follow The Same Residency Rules As The IRS?
Sadly, if lodging a federal return in the U.S. wasn’t complicated enough, a whole set of different rules beyond the scope of this article apply to determine if a Canadian working in California is considered a California tax resident, and hence subject to California tax on their worldwide income. Since California is not a party to the U.S.-Canada tax treaty, no foreign tax credits can be taken for any foreign taxes paid to Canada. In addition, since California is a community property state, special California community property tax rules apply with respect to splitting community income.

In Closing
Because few tax professionals work with Canadians temporarily working in the U.S., it is important to partner with a firm that understands the tax complexities involved in cross-border employment. At Cardinal Point, we assist Canadians working in the U.S. on temporary visas and are available to assist with properly assessing your U.S. tax residency and preparing the necessary U.S. and Canadian tax filings.

Marc Gedeon is a CPA (U.S), CPA (Canada) and Tax Attorney at Cardinal Point, a cross-border wealth management organization with offices in the United States and Canada. Marc specializes in providing Canada-U.S. cross-border financial, tax, transition, and estate planning services. www.cardinalpointwealth.com This piece is for informational purposes only and should not be considered legal or tax advice. Online readers should not act upon this information without seeking professional counsel.

Financial Planning for Canadians Moving to the U.S.

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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-united-states 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.

Moving to the U.S.? Don’t Leave Your Canadian Investments Hanging

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iStock_boxes-xlarge-1280x768 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