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Canadians Moving to the United States: Pre-Emigration Tax Planning Opportunities for Assets

Canadian residents moving to the U.S. should take prudent tax planning steps with regards to their liquid and physical assets. One notable tax planning opportunity is related to the “Departure tax” assessed by Canada. The Departure tax assumes that residents emigrating from Canada dispose of certain assets such as stocks and bonds held outside of registered plans on the date of their emigration. This disposal of assets is known as the “Deemed Disposition” date. Please note that various assets are exempt from the Departure tax. Examples include registered plans and Canadian real estate. Of course, there are other Canadian and U.S. tax issues that are applicable to assets that are exempt from the Departure tax.

The value of assets subject to the Departure tax is equal to the fair market value on the date of emigration. The Departure tax is calculated by subtracting the adjusted cost basis from fair market value in order to compute any applicable tax liability. Clearly, the Departure tax functions in a similar manner as the Canadian capital gains tax. Please note that Canadian emigrants are subject to the Departure tax whether or not their property is actually sold.

The threat of “double taxation” can result in the absence of proper pre-emigration tax planning. Double taxation occurs when the same gains are taxed by both Canada and the United States. Another problem that can result from poor tax planning is that foreign tax credits for pre-emigration Canadian tax paid might not be available.

Fortunately, those moving to the U.S. from Canada have the option to “step up” their cost basis to fair market value on the Deemed Disposition date for U.S. tax purposes. This is accomplished by making an election per the United States-Canada Tax Treaty. Following this election, future U.S. capital gains tax will be assessed on post-emigration gains.

This content is for general information purposes only and is not legal or tax advice. Materials on this website should not be used as a substitute for consultation with professional advisers. There is no "one size fits all" cross-border financial planning strategy. Therefore, it is important to partner with a qualified team of tax, legal and investment professionals who specialize in Canadian and United States cross-border transitioning  asset management. Please contact Cardinal Point Wealth Management at http://cardinalpointwealth.com/contact-us/ to review your unique situation.

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Comment   |  5 years, 8 months ago from Irvine, CA