Moving to Canada with Large ROTH IRA

02 October 21
Uncategorized

Question

Hi Phil

I stumbled across your site after researching some issues on google. I’ll be moving to Vancouver for work at the end of the year from Texas and I need some help with my US investments.

A few years ago I invested in some very speculative stocks within my ROTH IRA and I’ve been fortunate enough to have grown the ROTH to a sizable amount. I’m now worried that some or all of this will be taxed when I move to Canada.

Should I sell and pull all the cash out of the ROTH before moving to Canada?

I can be reached at xxx-xxx-xxxx.

Thanks

XXXXX

Answer

Hi XXXX

Congrats on the growth success of your ROTH. The ROTH will be treated a little different from a Canadian perspective when you move to Canada compared to traditional IRAs.

First, in the tax year you move to Canada you’ll need to file an article 18 treaty election with the Canadian government to declare ownership of the ROTH and to ensure it continues to be deferred from taxation going forward for Canadian purposes.

For example, let’s say that you moved to Canada on December 1st and setup residency on that date. You would be taxable in Canada from December 1st to the end of the year. Early in 2022 you’ll file a Canadian tax return for the 2020 tax. In addition to filing a Canadian tax return you’ll also need to submit a ROTH IRA election to the Canadian competent authority to report the ROTH and to ensure you maintain it’s current tax deferred status.

This election will include:

  • Your name and address
  • Your SIN and SSN
  • Name of the plan holder
  • Date the plan was established
  • Date you become a Canadian resident
  • Balance of the ROTH IRA at December 2008 or when you became a Canadian resident
  • Amount and date of the first Canadian contribution
  • A statement that you are electing to defer tax on the account under paragraph 7 article XVIII of the Canada-US Income Tax Treaty

Note, that after this election is made you will want to ensure not further contributions are made to the ROTH.

Once again, it’s very important that you file this election in the tax year you move to Canada. If not, distributions from your ROTH IRA will be taxable in Canada. Therefore, considering the significance of the ROTH holdings you’ll want to be 100% certain this election is filed with the CA.

Hope that helps and let me know if you need any additional help with your cross-border investment planning.

Cheers

Phil

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 778.433.1314. 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.