Moving to Canada – How to Handle Investments?

24 April 24
Markets & Investing

QUESTION

Hi Chris

I found you via an internet search and considering the amount of positive reviews you have online I thought you would be the perfect person to reach out to. Here’s my situation, would love you hear your thoughts.

  • My husband and I are moving to Vancouver Island from California some time early in 2023. We haven’t yet fully decided where we are going to live and have started our house search. We are both in our 50s, currently retired and this move to Canada will be permanent. My husband is Canadian and will be sponsoring our move (we are working with a immigration attorney currently).
  • Our California house is on the market currently.
  • We have assets that we need to plan for before the move. Amounts are approximate: IRA $750,000, ROTH $50,000, investment account (stocks and other) $1.5M, house on the market $800,000 and other misc household assets
  • In the next 10 years we expect to receive an inheritance valued at approximately $2M

Here are our questions:

  • What happens if the California home does not sell until after we move to Victoria
  • Should we leave all our investment assets in the US (currently at Schwab)
  • How will our inheritance be taxed for Canadian tax purposes?
  • Anything else we should be considering before the move?

Big thanks for your time on this and let us know if there’s a cost to have you answer our questions.

Thanks

XXXXX

ANSWER

Hi XXXXX

Thank you for the questions. We will need to setup a proper cross-border wealth management consultation, but I should be able to give you some general thoughts before we meet (not professional advice below):

  • If the house doesn’t sell until after you move to Canada you’ll need to report both the sale in Canada and the US (and California state). However the cost basis of your assets (other than registered accounts) will be increased to the fair market value upon entry. Essentially that means you will only be taxed on any increased in value on the property after you move to Canada. You will want to ensure you sell it within a few years to maintain your US principal residence exemption (assuming it qualifies).
  • In almost all cases we help clients move all their assets up to Canada. We have dual investment licenses in both Canada and the US and most US brokers only have US licenses and are not eligible to help manage investments for Canadian resident clients. We are not required to liquidate any of the investments to bring them up to Canada, but we will want to review the portfolio to ensure it will be efficient from a Canadian perspective.
  • We can also review the opportunity to convert some of the IRA to a ROTH to further save tax on future Canadian distributions.
  • With respect to your inheritance it will really depend on how it’s structured. For example, if you’re only receiving cash it will be tax-free to you both in Canada and the US. If however the inheritance will be structured as a trust we’ll want to review it in more detail. You likely won’t have to pay any tax on the inheritance, but being a beneficiary of a foreign trust can result in some unnecessary complex (we can discuss further at the meeting).
  • Once we sit down to review your situation we may have other planning items to consider including a final California state return in 2023.

I hope that helps, but like I mentioned above we’ll want to book a proper cross-border investment consultation to fully explore all the issues of your particular situation.

Regards

Chris

Phil Hogan, CPA, CA, CPA (Colorado)

Phil Hogan is a Canadian and US CPA working with clients throughout Canada and the US. Phil advises on cross border tax and financial planning matters. Phil can be reached at phil@beaconhillwm.ca or via telephone at 250-661-9417. You can also read more about Phil at www.Beaconhillwm.ca/team/about-phil/

This commentary reflects the personal opinions, viewpoints and analyses of the Beacon Hill Wealth Management Ltd. partner providing such comments, and should not be regarded as a description of advisory services provided by Beacon Hill Wealth Management Ltd. or performance returns of any Beacon Hill Wealth Management Ltd. client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Beacon Hill Wealth Management Ltd. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results. Any discussion about taxation is for educational purposes only and should not be viewed as professional advice. Consult your tax professional for tax advice on your particular situation.

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