Blog post

Question

I’ll be moving up to Canada next year and I’ll need help navigating some planning. I have a fair amount of investments in my revocable trust and need someone to review the holding to ensure I don’t run into trouble when I become a Canadian tax resident

I’ve done some research already but lots of the information I’ve found seems to contradict itself against other sources. Some people say keep the trust for estate planning reasons and others say get rid of the trust.

I have about $3,000,000 of public securities in the trust.

Can you provide some guidance on the matter?

Thank you

XXXXXX

Answer

Hi XXXXX, thanks for the email.

Yes, planning for your investments before you move to Canada is smart, especially if you already are planning on moving to Canada permanently.

Proper planning will require us to review your assets and spend some time to properly assess your particular situation, but I can give you some general thoughts below:

Revocable trusts are treated differently in Canada and the US. For US purposes these are often setup to help mitigate liability risk or assist in avoiding US estate tax. Income from a revocable trust will flow through to you as you if you owned the investments personally.

For Canadian purposes the trust is considered a separate entity and will be taxed as such. If you are the trustee of the trust and move you Canada with the trust in-tact the trust will likely become a Canadian resident trust and will be required to file Canadian trust returns (T3).

This is not necessarily problematic, however it will get expensive and having the trust while in Canada likely won’t serve very much benefit.

The estate tax exemption is currently over $10,000,000 and even if it gets cut in half you’ll still not be subject to US estate tax.

Also, if the investments remain in the US you’ll have significant T1135 filing requirements. These can get quite expensive if the investments are not moved up to Canada quickly. Without getting into the details of T1135 filings any public securities in US brokerage accounts will need to be reported on an investment by investment basis compared to US investments in a Canadian brokerage account that only need to be reported on a country by country basis. The difference in cost and complexity is significant between the two options. Hence the reason why we almost always suggest clients more their investments to Canada if they will be staying in Canada in permanently.

You’ll also want to review your investments to ensure that they are optimized for Canadian tax purposes. For example, lots of investments in the US do not carry the same tax treatment in Canada as they do in the US. For example, tax-free munibonds will be taxable in Canada and capital gains distributions from US funds will be considered straight income for Canadian purpose just to mention a few.

I hope the information outlined above is helpful. If you want to work through you investments in more detail please let me know and we can arrange a time to chat.

I can be reached on this email address (phil@philhogan.com) or via phone or text at 250-661-9417.

Cheers

Phil