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Cardinal Point Wealth Management

Your Cross-Border Financial Advisor

Possible U.S. Tax Changes for Snowbirds

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tax-blockA sweeping GOP victory has led to both houses of the U.S. Congress being controlled by Republicans. American voters also chose Republican governors in a majority of states. How do these and other recent changes affect snowbirds?

First, there is the so-called “snowbird visa,” which has been held up in the current Senate after passing the House. The new GOP majority could revive the Act, titled Encouraging Canadian Tourism to the United States, which proposes to let Canadians who meet age and residence tests stay in the U.S. for up to 240 days within a calendar year.

Second, three U.S. senators are encouraging closing the border permanently to those who renounce U.S. citizenship.

Third, while it is not likely that the new leadership will call for a change in personal income tax, it will probably address corporate tax avoidance.

However, even before the elections, the IRS announced inflation adjustments for income, gift, estate and expatriation taxes. These affect more than 40 tax provisions. A few of the notable changes include: the tax rate on singles and married couples; standard and itemized deductions; exemptions and Alternative Minimum Tax. Chances are, even before the newly elected officials take office, these and other IRS-mandated changes will have an impact on your taxes, as well as your short- and long-term financial planning.

How to Handle Cross-Border Divorce

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Recently, Jeff Sheldon and Terry Ritchie were featured in Advisor.CA to discuss the topic of divorce. Divorce can disrupt even the most solid financial plan, especially when cross-border considerations are involved. We’ve seen many planning cases where one person moves from Canada to the U.S. or vice versa for marriage. For those clients, the tax impact can be significant. Identifying the type of assets for distribution, their locations and the cost basis of non-retirement plan assets are all critical.

Property transfer due to divorce could have differing Canadian/U.S. tax results. Per U.S. transfer rules, unintended gift taxes could be imposed based on the spouses’ tax residency and citizenship. To find out what will happen if clients transfer property to each other, first determine if one spouse is a non-resident alien (NRA).

U.S. citizens are considered U.S. residents for a range of tax purposes, no matter where they generate/receive investment income, hold/transfer assets, or die. An NRA is generally subject to tax on U.S. source income and some types of U.S. investment or pension income. However, under the Canada-U.S. Tax Treaty, one may withhold taxes at source to address this obligation.

Canadian income tax doesn’t apply upon the sale of real estate as part of a divorce settlement. However, if one/both spouses are U.S. citizens, U.S. income tax could apply upon the sale/transfer. A U.S. tax resident can exclude up to US$250K of his share of the gain from U.S. income tax if certain qualifications are met.

It may be difficult to collect spousal and child support between both countries. Using Maintenance Enforcement may sometimes help. If paying alimony to a previous spouse who now lives in Canada, the U.S. citizen payor can deduct this amount under U.S. tax rules with documentation.

Terry Ritchie joins the firm as Director, Cross-Border Wealth Services

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Cardinal Point Wealth Management Inc. (“Cardinal Point”) is pleased to announce that Terry Ritchie has joined the firm as Director, Cross-Border Wealth Services.

With a wealth management career spanning 25 years, Ritchie brings substantial experience in the areas of financial, investment, tax and estate planning. Ritchie specializes in assisting affluent individuals and families with their Canada-U.S. cross-border financial planning complexities.

“Terry brings a very specialized set of skills to our firm,” said James Sheldon, CEO of Cardinal Point. “There are very few individuals in our industry with his cross-border financial planning knowledge and experience.”

At Cardinal Point, Ritchie will lead the Canada-U.S. cross-border wealth services division, which focuses on providing clients with comprehensive cross-border investment, financial, tax and estate planning and transition planning solutions. Prior to joining Cardinal Point, Ritchie owned and operated his own cross-border financial planning and tax practice.

“Ritchie’s ability to address the most sophisticated cross-border wealth management complexities is what separates him from a traditional, domestically-based financial planner,” adds Sheldon. “With the addition of Ritchie, our cross-border clientele will gain access to a thought leader whose advice has assisted generations of cross-border families over the years.”

Ritchie is a Registered Financial Planner (RFP) in Canada, enrolled to practice before the U.S. Internal Revenue Service (IRS) as an Enrolled Agent (EA). He is also a Trust and Estate Practitioner (TEP) affiliated with the Society of Trust and Estate Practitioners (STEP). He graduated with a Bachelor of Science in Finance from Arizona State University. He is active as an author, speaker and educator on international financial, tax and estate planning matters.