Today, we’ll be discussing the tax consequences for Canadians who are moving to the United States. We’ll delve into the specifics of how your Canadian investments, including RRSPs, TFSAs, RESPs, HBP, LLP, rental properties, and principal residences, are taxed by the Canada Revenue Agency (CRA) when you leave Canada.
Understanding CRA’s Perspective on Your Assets
When you permanently leave Canada and become a non-resident, the CRA views your assets differently. This article will explain what happens to these assets and how the CRA taxes them, helping you make informed decisions before and after your move.
Canadian Investments
Non-Registered Accounts: When you leave Canada, the CRA imposes a deemed disposition on your non-registered accounts, including trading accounts and crypto accounts. This means that the difference between the fair market value and the cost is taxed as a capital gain.
RRSP Accounts: RRSPs are retirement accounts and are not subject to deemed disposition. They can continue to grow without any additional reporting or tax obligations when you leave Canada.
TFSA Accounts: TFSAs are also not subject to additional tax when you leave Canada. However, the U.S. tax system treats TFSAs differently, and you may need to engage in tax planning to mitigate potential U.S. tax consequences.
RESP Accounts: These education savings accounts can remain active, but you cannot make new contributions once you leave Canada. There are additional reporting and taxation requirements in the U.S. for these accounts.
Home Buyers’ Plan (HBP) and Lifelong Learning Plan (LLP)
HBP: If you’ve borrowed money from your RRSP to buy a home under the HBP, the total balance will become due when you become a non-resident.
LLP: Similar to the HBP, any amounts borrowed under the LLP for education purposes must be paid back when you leave Canada.
Rental Property
Canadian Rental Property: There is no deemed disposition or additional tax on your Canadian rental property when you leave Canada. However, you must follow specific procedures, such as filing an NR4 form for rental income as a non-resident.
Principal Residence
Principal Residence: The capital gain on your principal residence is tax-free up to the point you leave Canada. If you convert it to a rental property or keep it as a second home, proper designation and calculation of the gain are crucial to avoid future tax issues.
New Accounts and Programs
First Home Savings Account (FHSA): This is a new savings program for purchasing a home. You can keep the account when you become a non-resident, but withdrawals for home purchases are not allowed. Closing the account before moving might be more beneficial to avoid withholding taxes.
Tax Planning and Consulting
Moving to the U.S. involves significant tax planning to maximize your financial benefits and minimize tax liabilities. Consulting with a cross-border tax professional is essential to simplify the process and ensure compliance with both Canadian and U.S. tax laws.
Conclusion
Understanding the tax implications of your move can help you make better financial decisions and avoid costly mistakes. Whether you’re planning your move or already living in the U.S., reaching out to a knowledgeable cross-border tax advisor can provide the guidance you need to navigate these complexities effectively.
For further assistance, you can contact us at Akif CPA. We’re here to help you simplify your cross-border tax situation and ensure a smooth transition.
Thank you for reading.
