Blog post

Moving to Canada is an exciting step, but if you have investments in the U.S., failing to plan properly can cost you thousands in unnecessary taxes, compliance headaches, and lost opportunities. Here are five common mistakes I see people make when they move to Canada—and how you can avoid them.

1. Not Winding Up Revocable Trusts

Revocable trusts offer some benefits for U.S. taxpayers, such as probate avoidance and streamlined estate planning. However, once you move to Canada, these trusts become Canadian resident trusts, leading to additional tax filings and potential complications.

• Why They Work in the U.S.: Revocable trusts allow assets to pass outside of probate, maintain privacy, and can be easily modified.
• Why They’re a Problem in Canada: Upon becoming a Canadian tax resident, your revocable trust will be considered a Canadian resident trust, leading to:
  • Filing Canadian T3 trust tax returns.
  • Potential U.S. 3520 reporting requirements.

Winding up your revocable trust before moving can simplify your tax situation and prevent future headaches. Note that winding up US trust could expose you to additinal probate fees that would need to be reviewed as part of your estate planning.

2. Leaving Your IRA in the U.S.

IRAs are great tax-deferred vehicles in the U.S., but once you move to Canada, managing them can become a challenge. Most U.S. brokerage firms will not allow Canadian residents to actively trade or manage their IRAs due to U.S. securities laws. This restriction often leaves people with limited options and potential compliance issues.

Some advisors suggest transferring an IRA to an RRSP, but this is generally not an efficient strategy due to tax implications. A better option is to work with a cross-border financial planner to manage your IRA from Canada.

Avoid Bad Advice: Some people are told to simply withdraw their IRA funds and reinvest in Canada. This is a terrible idea, as:

• You’ll pay U.S. tax (and possibly Canadian tax) on the full withdrawal.
• You lose the benefit of continued tax deferral.

For more details on managing your IRA from Canada, check out our guide here: Should I Transfer My IRA to My RRSP?

3. Not Considering a Roth IRA Conversion Before Moving

A Roth IRA conversion can be a strategic tax-saving move before moving to Canada. If your income is lower in the years leading up to your move, converting your traditional IRA to a Roth IRA allows you to pay U.S. tax at a lower rate now while securing tax-free growth in Canada.

Why This Works:

• Canada recognizes Roth IRAs for tax deferral purposes if you file the proper election in your first year of residency.
• Future withdrawals from a Roth IRA can be tax-free in both Canada and the U.S.
• With Canada’s high tax rates, deferring future tax can be a huge advantage.

To ensure proper tax treatment, make sure to file the necessary Roth IRA election. More details here: Roth IRA & Moving to Canada.

4. Not Selling Loss Positions Before Moving

Canada provides a cost basis reset (or “bump”) when you become a tax resident. However, this only works on gains. If you have investments with an unrealized loss in the U.S., Canada does not recognize that loss when you move. This can result in a frustrating tax situation where you could owe tax on gains that, in reality, do not exist.

What to Do:

• Consider selling loss positions before moving to Canada to lock in a U.S. tax benefit.
• Reinvest as needed after the move to align with your financial goals.

This strategy can prevent unexpected tax bills and ensure your portfolio is positioned optimally.

5. Not Cleaning Up Non-Registered Investment Accounts

Holding a U.S. brokerage account after moving to Canada can become an administrative and compliance burden.

• The T1135 foreign asset reporting requirement in Canada can be complex—each investment position needs to be disclosed individually.
• The cost of preparing these forms can exceed the actual tax return filing costs.

Solution:

• Before moving, consolidate and simplify your non-registered investment accounts.
• Work with a cross-border investment advisor who understands the nuances of managing U.S. and Canadian assets.

How We Can Help

At Beacon Hill Wealth Management, we specialize in helping Americans transition their investments and tax planning when moving to Canada. From winding up trusts to structuring IRAs efficiently and minimizing tax burdens, we ensure your financial future is in good hands.

If you’re planning your move, book a consultation today so we can help you avoid these costly mistakes and make the transition seamless.

Book a Cross-Border Consultation today!