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Question

I found your firm through Google reviews and have been binge-watching your YouTube podcast episodes – your content on cross-border taxes is so clear and helpful! My wife and I (both US citizens, in our early 50s) are relocating from San Francisco to Calgary next July due to a job transfer with my company. We’re excited but totally overwhelmed by the financial and tax implications of moving our investments to Canada. We’ve got about $3.2 million in US accounts: $2 million in a taxable brokerage account (mostly large-cap stocks, index ETFs, and a few actively managed mutual funds), $800,000 in my traditional IRA, and $400,000 in my wife’s Roth IRA. We’ve spent years building this portfolio, and we’re terrified of making a misstep that could cost us a fortune in taxes.

My biggest worry is how Canada’s tax system will treat our brokerage account once we’re residents. I’ve read that Canada taxes capital gains at a higher rate (50% inclusion, right?), and I’m not sure if we’ll get double-taxed on gains or dividends since the account is in the US. Should we sell some or all of the investments before moving to lock in US tax rates, or is it better to keep them as-is? I also came across something called a “departure tax” or “deemed disposition” in Canada – does that mean we’ll owe taxes on the unrealized gains in our portfolio the moment we become Canadian residents? That sounds like it could be a huge hit. For our IRAs, I’ve heard conflicting things about transferring them to an RRSP. Can we roll them over tax-free, or will we owe taxes immediately? My wife’s Roth IRA is especially confusing – I read that Canada might not recognize its tax-free status.

On top of that, we’re wondering about currency exchange risks. Our investments are all in USD, and with the CAD fluctuating, I’m worried about losing value when we eventually convert to Canadian dollars. Should we start diversifying into Canadian assets now, or wait until we’re settled? We also own a rental property in California worth about $1.2 million, which we plan to keep for now – does that complicate things further? We’re trying to avoid any surprises and want to make sure we’re planning this move the right way. Could you help us figure out the best strategy for our investments and taxes? We’d love to book a consultation if that’s the next step.

Thanks so much, XXXXX

Answer

Hi XXXXX

Thanks for the email and for being a subscriber to the channel, much appreciate! It’s likely best to setup a free consultation with the team here:

https://beaconhillwm.ca/get-started-now/

That being said, let me give you some general thoughts on your questions below and we can discuss in more detail on the call:

• The non-registered US brokerage account will be treated differently thank the US IRA. You non-registered assets like stocks, bonds, ETF, mutual funds and real estate will be revalued for tax purposes. Essentially the cost basis of your assets will be “bumped” to the fair market value at the date of Canadian residency. They do this to ensure Canada doesn’t tax you on accrued gains you accumulated before you entered Canada. There’s lots of planning to execute to ensure these new cost basis are tracked for both Canadian and US purposes. Your US cost base will be maintained as historical.
• The traditional IRA and ROTH IRA will be treated differently. The trad IRA will be deferred for both US and Canadian purposes via the treaty. The ROTH however will need to be disclosed and a CRA ROTH IRA election will need to be filed with CRA for the first tax season fillings. This will ensure the ROTH is also deferred from taxation for Canadian purposes. Given the size of the trad IRA, moving it to an RRSP doesn’t make much sense.
• Managing currency risk can be tricky, but we do that for clients all the time and we have access to currency conversion rates very close to spot.
• Assuming the California rental property will never be your US principal residence keeping it should be fine. You will have to report the rental income on both sides of the border and also need to file additional non-resident California state tax returns.

Once again, there are only some general thoughts and we’ll need to review your situation in detail given the complexity. Please use the link below to setup a free cross-border consult and we’ll take a look at everything together.

I look forward to our chat.

Cheers

Phil

phil@beaconhillwm.ca