AMERICANS LIVING IN CANADA optimize your cross-border finances
Written by Tiffany Woodfield, Associate Portfolio Manager, CIM®, TEP®, CRPC®
Strategy and Planning for Americans in Canada
For Americans living in Canada, there are steps you can take to make your life easier while living in Canada. Nobody wants problems with the IRS, CRA, or a massive tax hit. But these things happen when you don't have a comprehensive cross-border financial plan and investment strategy.
As a cross-border financial advisor, I am constantly speaking with Americans and Green Card holders living in Canada but experiencing issues with their cross-border finances. I've noticed many of the same mistakes come up over and over again.
In this article, I will cover the essential topics you need to know about financial planning, investing, and tax planning as an American living in Canada. I’ll also cover some other areas like medical care and culture. Please review the table of contents to select the topics that are most of interest to you.
If you just want a simple guide to cross-border financial planning, please click HERE to get the PDF we've created to simplify your planning process. We made this document specifically for Americans, Green Card holders and dual citizens living in Canada. Your needs are specific, and the pitfalls you may be experiencing are unique to your situation.
In this article, you’ll get some of my best tips on navigating the financial landscape as a dual-citizen or American living here in Canada. Whether you’re moving here for work or to retire, there are pitfalls you need to avoid.
TABLE OF CONTENTS
- Living in Canada as a US Citizen
- Requirements for Americans Living in Canada
- Financial Planning Requirements for Americans in Canada
- Estate Planning and Trusts for Americans in Canada
- Estate Planning for US Citizens Retiring to Canada
- Retirement Planning for US Citizens in Canada
- Dealing with the IRS as a US Citizen in Canada
- Additional US Tax Considerations for Americans Living in Canada
- Avoiding Double Taxation
- Managing Your Investment Portfolio in Canada as a US Citizen
- Major Cross-Border Financial Pitfalls to Avoid
- Culture and Social Etiquette in Canada
- Accessing Health Care in Canada
- How to File and Pay Your Taxes in Canada
- Putting Together Your Cross-Border Financial Planning Team
- Common Questions about Living in Canada as a US Citizen or Green Card Holder
- Choosing the Right Cross-Border Financial Advisor
- Next Steps
- How We Help
- More Canadian Financial Planning Articles & Guides
Living in Canada as a US Citizen
You may think living in Canada as a US citizen is not a significant change to your finances. It's not uncommon for people to believe they're done once they've sorted everything related to the move! I often speak to US citizens who have moved to Canada. Before the move, they were only worried about where they wanted to live, what to do at the border crossing, and whether they should bring their car.
It is only once living in Canada as US citizens that they realize it is much more complicated. This is primarily because of the continual obligation to file to the IRS. This obligation creates many things to be aware of to ensure you don't fall into a tax trap.
Requirements for Americans Living in Canada
I recently spoke to a US citizen client about his ability to work here in Canada. He had moved across the border with his Canadian wife a year and a half ago. But he hadn't realized how long it would take to get his permanent residency status so he could work in Canada.
He has already been considered a Canadian tax resident for a year. Thus, he has had to report his income to the Canadian Revenue Agency (CRA). Yet, he still hasn't been legally allowed to work in Canada. While there's no doubt it will go through, it has been taking longer than he expected. He has applied to become a permanent resident through family sponsorship. However, the wait times can be longer within Canada than outside the country.
It's essential to keep in mind that while you may not need a visa to enter Canada, you must follow specific steps to work here. You will first need to become a permanent resident through common routes such as family sponsorship, a work permit for a permanent job, or a start-up visa.
For more information on working in Canada, you should speak to an Immigration Lawyer. In addition, if you're ready to speak with a cross-border financial planner about your investments, we suggest scheduling an introductory call with one of SWAN's cross-border experts. We can also refer you to an excellent cross-border lawyer in our network.
Financial Planning Requirements for Americans in Canada
As an American living in Canada, your financial planning isn't as simple as if you were a Canadian. You need to consider that you will be reporting your income to two countries with unique rules and laws. Standard savings tools that are great for a Canadian may not be the best option for an American living in Canada.
When you start a financial plan, the foundation of the conversation is cash flow:
How much do you need now and in the future stages of your life?
Where will you draw this money from?
For income streams, if you worked in Canada and the US for part of your career, you will have accumulated CPP and Social Security. There are strategies for when to start taking one first over the other. Moreover, registered retirement vehicles such as an RRSP in Canada and an IRA in the US also have different rules. This means timing which one to take money from first needs to be considered. While this is complex, it's something your cross-border financial advisor can help you plan. If you have substantial assets, you shouldn't be doing this alone.
Estate Planning and Trusts for Americans in Canada
When discussing financial planning, I often hear one big fear from clients: "What happens when I pass?" As an American in Canada, it is critical to consider this eventuality.
If you aren't careful, you can fall into tax traps in your estate planning. You may risk double taxation of your estate if you have an executor who lives in the US or if you use trusts incorrectly. You need to know that they don't work the same way in both countries. When a person sets up a trust in their country of residence, such as Canada, and one or more of the beneficiaries lives in the US, frustrations often ensue. One can easily spend a lot of money to get expert advice and set up an estate only to discover that it isn't ideal within a cross-border context. This can be very frustrating.
You will only get one side of the story if you aren't working with cross-border experts. The tax treatment of trusts is different in both countries, and if you are considering using trusts, you need to speak to a cross-border trust lawyer. We are happy to connect you with one of the cross-border trust lawyers in our network.
Estate Planning for US Citizens Retiring to Canada
These are a few guidelines to follow and pitfalls to watch out for when doing your cross-border estate planning as a US Citizen retiring to Canada:
- If you haven't moved to Canada yet, get all your documents together for your pensions and apply for an online social security account.
- You will need to update your will for the province you live in Canada.
- You may face double taxation if you use a US resident as the executor of your will.
- Before moving, you will likely want to collapse your revocable living trust in the US.
- Remember, taxation of trusts is different in Canada and the US. You may want to hire a cross-border estate lawyer.
- If you are the beneficiary of a trust created in another country, ensure the trustee and lawyer understand how being non-resident beneficiary impacts you.
Retirement Planning for US Citizens in Canada
When retirement planning for US citizens in Canada, you need to consider where to take your income from in retirement to maximize the benefits and avoid overpaying taxes.
I always tell clients that an RRSP and an IRA represent a future tax liability for which we must plan. You don't need to wait until your 70s to take out money. For example, let's say you have $2 million in an IRA because of a previous rollover from an employer. Thus, you will have a higher required minimum distribution in the future. Next, imagine you also have a large RRSP, meaning you will have a high amount to take out. Adding this to other income and pensions could move you up into the top tax bracket in Canada.
You need to know the tax impact of where you draw your money from in retirement. The added layer of being a US citizen in Canada must always be considered. Because you continue to file back to the IRS and are at a greater risk of falling into tax traps, your tax considerations will always be more complex. This is a crucial part of retirement planning for US Citizens in Canada.
READ MORE: Everything You Need to Know About Retiring in Vancouver
Dealing with the IRS as a US Citizen in Canada
As a US citizen in Canada, as long as you file your tax return, you will usually be okay with the IRS. I found it interesting to learn from my clients that the CRA, Canada's equivalent to the IRS, is much more forgiving than the IRS. One of my clients said when they lived in the US, it was like you are guilty until proven innocent with the IRS. They also mentioned that the IRS penalizes you more easily. With the CRA, on the other hand, the cient said it is like you are innocent until proven guilty.
Nonetheless, you shouldn't worry about the IRS if you are following the rules. Report your worldwide income to the US, follow the rules, and work with a cross-border accountant who understands how to utilize all the foreign tax credits. If you do these three things, you usually don't owe tax to the IRS. This is because tax rates in Canada are traditionally higher than in the US.*
*keep in mind it is important to speak to your cross-border accountant about your particular situation.
Additional US Tax Considerations for Americans Living in Canada
These are five primary tax considerations that we often see come up for Americans living in Canada:
- IRS: You must still file to the IRS. We suggest working with a firm like SWAN Wealth Management that makes it simple for you. We produce the complete set of tax slips you need to ensure you are onside with Canada and the US.
- WHAT TO AVOID: You need to know what not to invest in so that you don't have an additional tax liability to the US.
- WHAT TO CHANGE: Investments that may have worked great as a US resident are often not ideal for a Canadian resident. They may cost you more tax. For example, receiving US dividends as a Canadian resident does not offer a tax benefit. However, Canadian dividend-paying stocks do provide a tax benefit in Canada.
- EXPERTISE MATTERS: It's not uncommon to fall into tax traps if your financial advisor isn't a cross-border expert. Also it is best to work with a cross-border accountant who can file both your Canadian and US tax returns.
- SELLING YOUR HOME: When you own a principal residence in Canada and sell it, it may be tax-free for Canadian purposes. However, you still need to follow the rules for the US, and it may be a taxable capital gain.
Avoiding Double Taxation
To avoid double taxation, build a team around you that understands your situation and has experience dealing with clients like yourself. Work with a cross-border financial advisor, cross-border accountant and cross-border lawyer. If you have substantial assets, I wouldn't recommend managing your cross-border financial situation alone. I have dealt with many cases where a client comes to us after paying penalties and taxes that could have been avoided if they had worked with an expert initially.
If you have yet to move, I recommend that you start planning and getting professional advice ideally a year or two before you proceed with the move. This way, you can take advantage of potential opportunities well in advance.
But if you're playing catch-up right now after completing your move, please don't worry. Simply schedule a call with one of SWAN Wealth's team members. We'll identify what can be done to optimize your cross-border investments and financial plan.
Managing Your Investment Portfolio in Canada as a US Citizen
Managing your investment portfolio in Canada as a US citizen can be confusing because there are investments that cause additional tax complications. In addition, you will be reporting to two governments with different currencies and methods to tax capital gains. Thus, if you like to keep life simple, working with a firm like SWAN Wealth that produces two sets of tax slips is best.
Most Canadian banks will make 1099 slips if you hold US stock positions and sell. But the banks usually do not produce the full set of slips required for a US person. Your accountant must look through your slips and determine which ones you have and which are missing. Then they must find the missing information. This adds an additional layer of cost to preparing your taxes each year.
Working with a firm that produces two complete sets of slips, one for Canada and one for the US, saves your accountant time. And, even better, it saves you money.
Moreover, if you work with a Canadian-only advisor, they might invest you in Canadian mutual funds or Canadian ETFs, which may cost you at tax time. On the flip side, if you keep your investment portfolio in the US while living in Canada, your US advisor won't likely know which investments are treated tax favourably in Canada. You may miss out on these opportunities to reduce tax.
Ideally, you should find a cross-border financial advisor who can work with you whether you live in Canada or the US.
Major Cross-Border Financial Pitfalls to Avoid
When Americans in Canada come to us, they often say, "My situation isn't that complicated. I don't think we'll need to do much differently."
While that may be true for when you live in the US, as an American living in Canada, there is always complexity with plenty of pitfalls you can easily fall into.
Here are some of the main things to avoid and watch out for:
- Do not invest in Canadian mutual funds or ETFs as they may be considered PFICs.
- Do not keep your taxable non-registered accounts in the US as a Canadian resident.
- Do not contribute to a Roth IRA as a Canadian resident.
- Do not roll over an IRA to an RRSP.
- Do not open a TFSA before speaking to your accountant.
- An RESP is tax-free in Canada but not tax-free in the US. There are still some circumstances where it may be beneficial.
- Get a cross-border investment advisor who demonstrates expertise in dealing with clients in situations similar to yours.
- Work with a cross-border accountant who can prepare your Canadian and US tax returns so they can match the foreign tax credits.
- Determine if you are a covered expatriate before giving up your Green Card.
- Speak to your accountant before opening a Canadian corporation.
- Plan taxable events for before you move, if possible.
If you'd like to learn more about why you should follow these guidelines, please schedule an introductory call with a SWAN Wealth cross-border expert. CLICK HERE to schedule a call.
Culture and Social Etiquette in Canada
The culture of Canada is different from the US. The feedback I have gotten from clients living in all areas of Canada is that it is generally much more accepting of different cultures and beliefs.
It is often said that Canada is very "politically correct." For some, this can be frustrating, and you might want to say, "Just tell me what you think!" However, many of my clients have said this attitude is very welcome after living in the US. In Canada, we don't tend to shout our opinions from the rooftops. In fact, it's not uncommon for Canadians to refuse to discuss politics or disclose who they voted for as they believe this is private.
Accessing Health Care in Canada
When moving to Canada, people are always excited about access to publicly funded healthcare. Canadian medicare includes medically necessary doctors and hospital visits but not prescriptions, dental or vision care. Many people don't realize until they move to Canada how difficult it is to find a local doctor who is still taking on new patients.
In big cities, most physicians are at capacity and aren't taking on new patients. This means you would need to go to a walk-in clinic and see the doctor on staff. The other surprise is the level of service in Canada compared to the US. Because healthcare in the US is a private business, you have more options. The doctors want to keep their "customers," a.k.a patients, happy. That's not exactly the case in Canada, where patients are not customers. That said, if you have a serious condition or issue, it will be given priority attention, and you will be taken care of without worrying about insurance or costly bills.
Also important to note is that it can take up to three months for your application for provincial healthcare to be processed. Thus, getting private medical insurance while you wait is the best thing to do.
How to File and Pay Your Taxes in Canada
As a US person living in Canada, you will report or file your taxes in two countries. You will file to the CRA and to the IRS. I recommend using a cross-border accountant to do both your Canadian and US tax returns so they can make sure to match up your foreign tax credits.
In Canada, you can pay your taxes through online banking at your Canadian financial institution. You will need to pay from a business bank account for business taxes.
To learn more about how to file your taxes, read this article: Ways to do your taxes - Personal income tax - Canada.ca.
Putting Together Your Cross-Border Financial Planning Team
The number of times I have had clients come to me frustrated because they were dealing with people who didn't understand their situation is countless. When you have to report your worldwide income to two countries, you are exposed to two tax bodies, and you do not want to make a mistake that costs you money. This is why I recommend building a team that has cross-border experience.
You will need:
- A cross-border accountant who understands how taxes work on both sides of the border and can help you avoid double taxation.
- A cross-border financial advisor who knows what you can invest in as a US person living in Canada and who can manage your US retirement accounts whether you live in Canada or the US.
- A cross-border lawyer who can advise on immigration and help determine strategies if you are a covered expatriate or create an estate plan to protect your assets.
READ MORE: Americans Moving to Canada: Top Tips on Everything from Moving to Money
Common Questions about Living in Canada as a US Citizen or Green Card Holder
1. Do US citizens living in Canada have to pay taxes?
Once you become a permanent resident of Canada, you must report your worldwide income to the Canada Revenue Agency, CRA. Likely, you will have to pay taxes depending on your income level and the tax credits to which you are entitled.
2. What is it like to be an expat living in Canada?
There are many ex-pats living in Canada and enjoying the lifestyle and opportunities that Canada has to offer. To be able to relax knowing everything is taken care of regarding finances, you need to be sure to have a team of cross-border experts.
3. Can US Citizens Live in Canada?
Yes, US citizens can live in Canada. If you are coming as a visitor, you can stay for up to 6 months, and if you want to extend your visit, you can apply for a visitor record. Remember that you do not get access to publicly funded health care as a visitor. To become a Canadian citizen, you must first follow the steps to become a Permanent Resident.
READ MORE: How Much Do You Need to Retire in Canada?
Choosing the Right Cross-Border Financial Advisor
Here are a series of questions to ask yourself as a guide to choosing the right cross-border financial advisor:
First, consider the logical details:
- Do they have the expertise to help me in my situation?
- How familiar are they with working with clients like me?
- Do they have the ability to quarterback my cross-border finances?
- Do they have a fiduciary responsibility?
- Can they manage and provide advice on the investments and create a cross-border financial plan?
- Do they have someone on their team who can offer advice on taxation in both the US and Canada?
- Can they prepare tax returns for both countries if necessary?
- Can they help me whether I live in Canada or the US?
- If I move back, can I still work with them?
Next, determine the emotional details by asking yourself:
- Do you feel you could discuss your fears, beliefs and goals around money?
- What are this company's values?
- Do you feel aligned with this company’s values?
Once you have evaluated both the emotional and logical sides, you will feel confident that you have chosen the right team. The right team can help you avoid the common traps and pitfalls and guide you to reach the correct destination of where you want to live to feel confident it is taken care of, and you can enjoy your next adventure!
Next Steps
Please get in touch if you’re an American or Greencard holder moving to Canada and need assistance with moving your investments, estate planning, and portfolio management. At SWAN Wealth, we specialize in Canadian financial planning, cross-border financial planning and cross-border wealth management. We help Americans and Canadians move towards a work-optional lifestyle by managing their investments wisely. Whether you’re currently retired or at the top of your career, we can help you protect your assets and legacy.
How We Help at SWAN Wealth:
- Manage your IRA and retirement accounts from Canada or the US
- Offer a pre-immigration consultation from a tax perspective before you move
- Guidance on retirement benefits such as CPP, social security and medicare
- Transfer your investments from the USA to Canada, keeping them in a tax-deferred account
- Hold investments in US and Canadian currency on both sides of the border
- Minimize your tax burden by creating a tailored financial plan
- Manage your investments over the long term so that you can retire happily
- Provide access and management to your investments no matter what side of the border you live
- Understand the tax implications of various investment strategies
- Create a financial plan that serves you in the short and long-term
- Act following our fiduciary duties to ensure every aspect of your financial plan is in your best interest
- Help you with your cross-border estate planning so you can leave the legacy that matters to you
- Refer you to one of our in-house cross-border accountants so you can have everything done under one roof.
More Canadian Financial Planning Articles & Guides
If you’re planning a cross-border move, these articles and guides will help simplify your move and ensure you’ve covered everything.
The Ultimate Financial Planning Resource for Dual Citizens or Green Card Holders Living in Canada
Cross-Border Estate Planning Guide
401k in Canada - How to Stay Onside with the IRS and Avoid a Large Tax Bill
Roth IRA Canada: How to Manage Your Investments Across the Border
Retiring to Canada - A Financial Planning Guide
Financial and Tax Planning for US Citizens Living in Canada
Canadian RRSP Facts for Dual Citizens, Expats and Canadians
About the Author
Tiffany Woodfield is an Associate Portfolio Manager licensed in Canada and the USA and the co-founder of SWAN Wealth Management with her husband, John Woodfield. Tiffany advises clients who live in Canada and the United States and want to minimize their tax burden and have their cross-border finances managed correctly. Tiffany and John Woodfield help their clients simplify their cross-border finances and create long-term revenue streams to keep their assets safe whether they live in Canada or the US.
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