Question

I’m moving to Victoria BC at the end of the year and will need to setup a consultation to discuss my financial and tax situation. I thought it best to outline my situation before meeting so you could get some context before we speak.

I am a dual citizen of Canada and the US, originally born in Canada and moved to the US when I was a teenager. Since living and working in the US I’ve accumulated a fair amount of wealth that will undoubtedly be taxed heavily in Canada. I’m not against paying my fair share of Canadian taxes I simply want to ensure that I minimize my future tax bills as much as possible. From reading your blog online you seem like the guy to help.

Here is a rough breakdown of my situation and related assets:

• Age 62
• Married with no kids
• will sell our primary residence before entering Canada
• will maintain Florida rental property (worth $400,000)
• IRA of $550,000
• 401k of $1,800,000 (heavy oil market allocation)
• ROTH IRA of $80,000
• non registered investment account with fidelity of $2,800,000
• Shares in private ventures total around $500,000
• misc bank accounts worth $50,000

I’ll be retired by the end of the year before we move up. My plan is to move to Victoria, purchase a condo downtown and retire off my investments. I need some help in establishing how and when to draw down my investments accounts and the related tax matters that ensue. Please let me know if you have time to discuss my situation. We’ll need to setup a phone call as I won’t be in Canada for some time. If possible can you please outline some of the more important items I should be considering before the move.

Thank you for your time and I look forward to our phone meeting.

XXXXXX

Answer

Hi XXXXX

Thank you for your detailed email and I’m sure we’ll be able to setup a phone conversation shortly. Also, congratulations on the upcoming retirement, you’ve definitely picked a great city to retire to.

Let me outline some of the major tax considerations for the move. We can discuss each point in more detail once we chat on the phone.

• Generally speaking the assets you own when you enter Canada will be revalued for “cost basis” purposes at the fair market value estimated at the date of your entry. Essentially Canada will only tax you on accumulated capital gains on property from the time you enter Canada. This would likely only apply to your non-registered investment accounts, Florida property, principal residence and private company shares.
• Sounds like you plan on selling your primary residence before entering Canada. If for some reason this doesn’t happen the same cost revaluation rules discussed above would apply to the property. Also, you would want to ensure the property was sold within a specific time frame to ensure you maintained the US principal residence exemption.
• You’ll want to inform all of the holders of your investments and bank accounts that you have a new non-US address as this may affect how these accounts are managed.
• The IRA and 401k assets will remain deferred from taxation in both the US and Canada until such time as you withdraw funds. Once withdrawn they will be treated as US source pension income and taxed accordingly.
• The ROTH IRA will also maintain it’s non-taxable nature as long as the appropriate Canada income tax elections are made (we can file these for you)
• Any rental income earned on the Florida property will be also taxed first in the US with an offsetting tax credit in Canada for any US taxes paid
• You’ll have foreign income verification forms to prepare for Canada (T1135) to report some of your investments
• Your private company shares may be tricky to deal with, especially if you have options, but we can discuss these issues over the phone.
• Once you start accumulating assets in Canadian financial institution accounts you’ll need to start filing FBAR forms. These foreign bank account reporting forms report all non-US financial accounts to the treasury department. These are very important forms as the penalty for non-filing of these forms can easily exceed $10,000.

Note that the items above are simply a selection of important considerations and we’ll need to properly flush out your complete tax situation over the phone. Considering the breadth of your income sources it appears as though we’ll have a fair amount of flexibility in planning your retirement income in a tax efficient manner.

I’ll have my reception give you a call to arrange a phone conversation. I look forward to our call and please don’t hesitate to contact me at 250-381-2400 if you have any questions in the interim.

Regards

Phil