If any of your Canadian clients are considering a permanent move to the U.S., whether for employment or for lifestyle reasons, there are a wide variety of cross-border issues they may need to address.

“You can’t just move to the U.S. and begin living and working there,” says Brian Wruk, a certified financial planner and partner with Transition Financial Advisors Group Inc. , based in Calgary and Phoenix. “It’s another country.”

Despite this, Wruk says, he and his business partner, Terry Ritchie, regularly hear from prospective clients who are not only unaware of the many tax, estate and other legal issues they may run into moving south of the border, but they don’t even realize they lack the right immigration status to consider the move in the first place.

“Generally, you need an employment visa, family ties or U.S. citizenship through having been born in the U.S. to move there,” says Ritchie, a CFP and partner with Transition Financial. Ritchie and Wruk are co-authors of The Canadian in America (ECW Press, 2008).

One exception is the EB-5 inves-tor visa, available on a limited basis, which allows a wealthy foreigner to acquire a green card, which in turn can lead to U.S. citizenship if the cardholder makes a substantial investment — typically, US$500,000 or more before fees — in a business located in an economically depressed area of the U.S.

If your Canadian client does have a valid visa to live or work in the U.S., the second thing he or she needs to consider is health insurance, obtained through an employer group plan or directly through an insurer. There is no universal health program in the U.S. that a Canadian typically can tap into, Wruk reminds clients — and once a Canadian stops being a resident of his or her home province (usually, after six months away), he or she won’t be able to return and have the relevant government provider pay for medical coverage.

Because Canada, unlike the U.S., bases its income-tax regime on residency, not citizenship, a Canadian who ceases to be a Canadian resident will no longer need to file a Canadian income-tax return after filing his or her final “exit” return. The Canada Revenue Agency looks at a number of factors to determine residency, including location of primary home, family and social ties, place of business and other items. A Canadian making the decision to live in the U.S. is usually better off cutting residency ties to Canada, both Ritchie and Wruk say.

However, the CRA does impose a departure tax on Canadians who cease to be residents. The CRA holds that a deemed disposition of a Canadian’s worldwide assets occurs at the date of departure, triggering taxes on any capital gains on those assets. Certain assets that the Canadian government can still tax sometime in the future are exempt from the departure tax. These include registered accounts, Canadian real estate and life insurance policies, among other items.

Advantageous tax and estate-planning opportunities can be realized before, but not after, a move to the U.S. For example, one strategy for wealthy individuals is to gift assets to family members before leaving Canada, says Prashant Patel, vice president of high net-worth planning services with Royal Bank of Canada’s wealth-management services in Toronto.

In Canada, the CRA does not levy taxes on gifts, while in the U.S., the Internal Revenue Service limits the amount of gifting one can do in a year and over a lifetime, taxing amounts above those limits. Gifts of assets made by your client while still in Canada will lower the amount of taxes due at departure, and also lower the assets that will eventually fall under U.S. estate-tax rules.

Departing Canadians can keep their RRSPs in Canada, but the U.S. tax authorities will not consider gains made in them to be tax-exempt. Your client must declare income generated in RRSPs annually when filing a U.S. return.

But under the Canada/U.S. tax treaty, Canadian RRSP holders can elect to defer taxes — maintaining the tax-deferred status of the registered account — by annually filing IRS Form 8891. However, some U.S. states do not recognize that form, and will impose state taxes on any gains made in those investment vehicles.

Any lump-sum withdrawals made from an RRSP while your client is a resident of the U.S. are subject to a CRA-mandated 25% withholding tax. Payment of that tax must be drawn from assets within the RRSP.

@page_break@The decision to keep an RRSP in Canada, or to close it and take any tax hit, depends on a client’s particular circumstances — in particular, whether he or she plans eventually to return to Canada, the size of the plan and the potential tax liability involved if it is closed. In general, there is no tax-efficient way to move RRSP assets into a U.S.-equivalent program.

Due to U.S. security regulations, U.S. residents cannot hold Canadian-based non-registered brokerage accounts. So, Canadians moving to the U.S. need to close those accounts and move the assets to the U.S.

Experts recommend that Canadian clients who move to the U.S. should have their wills and their power of attorney assignations redone in the U.S. by an estate planner in the state in which the clients will reside. Canadian wills might be regarded as valid in the U.S., provided they conform to state provisions. However, to guarantee that wills and PAs are honoured, and that they are not held up in probate, it’s best for your clients to have an estate plan done in the U.S. soon after settling there.

Many U.S. estate plans involve the establishing of family trusts. However, careful cross-border planning is needed here, because Canadian tax authorities may regard that trust as taxable if it’s established within five years of the person leaving Canada and if there’s a Canadian beneficiary. IE



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