Blog post

Question

Hi Mr. Hogan

Thank you for taking the time to answer my questions. First let me give you a little background information. I am a dual citizen currently living in the state of Vermont. I plan to move to BC at this time next year. I currently own my home in Vermont free and clear as I paid off my mortgage when I retired in December.  My plan is to keep my home in Vermont and travel back-and-forth between the two countries. I will refinance my house for 80% of the value to pay cash for property in BC. I do not plan on getting any rental income as I will have my niece live here and she will pay the utilities and the upkeep. My brothers and I recently inherited three properties. Two we sold and one we decided to keep. The one we kept we will be renting out. My brothers and I formed an LLC for this rental, property.  When I spoke with an accountant a couple years ago he suggested this not be done for tax reasons. How would this affect me tax wise?

Would it be best if I sold my share of the LLC to my brothers prior to my move?

My income sources when I move to Canada will be from my IRA and SSI

The current value of my IRA as of July 3 is $800,000USD

My monthly SSI will be $2427USD.  This is before any Medicare deduction.  My financial advisor suggested that I have 15% withheld for tax purposes as I plan to take $45000 as a yearly income from my IRA.  What is your thought on this.  Will my SSI be taxed in both countries?

I was planning on keeping my IRA with my current financial advisors who are not licensed in Canada. How would that affect my taxes. And what would be the ramifications of leaving it in the US?

If I do decide in a couple more years to sell my property in Maine how would Canada tax me on the proceeds?

Would it be better just to travel back-and-forth and not claim Canadian residency until after my house is sold.

The other concern I have and I’m not sure if you can help me with this but maybe you can lead me in a right direction. I have a daughter who is not a Canadian citizen. But when I pass I would like to be able to have a trust fund set up for her along with leaving her my Canadian residence.  Is this something that would be possible?  Are there estate taxes in Canada as there is in the US?

I’m sure I will have more questions in the future. If it would be easier to have a phone call to discuss these issues please feel free to call me at XXX-XXX-XXXX.

Again thank you so much for your time in answering my questions hoping to hear from you soon

Answer

Hi XXXXX,

Thanks for the email. You’ll definitely want to get some professional advice on this (we can set up a proper consultation here), but let me give you some general items to review based on the information in your email. Once again, this is not professional advice and should be used for educational purposes only.

LLC with rental property

This one will be quite tricky from a Canadian perspective. In most cases, I advise clients to avoid the use of LLCs once they become Canadian tax residents. The LLC will be considered a foreign corporation for Canadian purposes, and Form T1134 will be required. This form is notoriously expensive and difficult to prepare and file. Also, there’s a huge chance of double taxation with respect to the LLC.

IRA in the US (and potential ROTH conversion)

In most cases, I suggest having the IRA moved up to Canada with a competent cross-border wealth manager who can help with cross-border planning for all accounts. It also might make sense to review a potential ROTH IRA conversion. If you can convert some of your traditional IRA to a ROTH at relatively lower tax rates before entering Canada, there could be significant Canadian tax savings.

Trust fund for daughter

Given you’re a U.S. taxpayer, setting up a trust would be difficult, expensive, and time-consuming. In some cases, there’s value in setting up a trust for beneficiaries; however, in most cases, we can plan for inheritances without involving trusts.

I hope the information above has been helpful. If you want to book a time to review your cross-border financial planning, you can book a complimentary review here.

Cheers

Phil