Implications of Returning to Canada from US and FIRE'd

[nuke_diver]

I have read a bunch of post regarding this but felt that many of them were older so I would like to see if there is any one who has done this recently and what they have found the issues to be. This is far from a done deal for me as my wife is not currently in favour of it and I am not sure financially it makes sense but personally for me it would. It is not a political move but a personal one so I am willing to pay some penalty.

For reference here are the parameters, I am a Canadian citizen and my wife is USian, I have a green card and have worked here for ~25 years so I know all of the US tax laws that apply to citizens apply to me. We would likely want to keep out home in Calif in case we wanted to move back and would rent it so there would be rental income. We would move to BC. We have more than 2M in assets so the exit tax as I understand it would appear to apply (which could be a deal breaker right there but I am still trying to understand this). As I am CDN returning should not be an issue for me but not sure about the wife's status. It seems that taxes would need to be filed in both countries and I am not 100% clear on how to avoid getting double taxed

FWIW we are also considering moving to Washington due to housing costs in the Vancouver area. We would need to be near Vancouver in some way shape or form as my wife's parents live there (and they have awesome Chinese food there ).

Appreciate any comments as I consider all my options. True RE will be in 1-2 years most likely (sooner if I can get myself laid off ) so I am starting to do all of the analysis now to understand what I will need and what I will have.

[nun]

You can avoid double taxation by applying the Canada/US Tax Treaty.

You should look carefully at the CA residence/domicile rules. Keeping a house there might open you up to CA state tax as well.

It's not obvious that the exit tax would apply as you can split your net worth between you and your wife giving you $1M each which is below the threshold. If you give up the Green card by filing 8854 and I-407 then the US will not be able to tax your worldwide income anymore, just income that arises in the US. On things like US retirement accounts the treaty will probably result in no US tax, just Canadian tax.

Of course you have also to consider your wife's tax status and your immigration status.

[nuke_diver]

Thanks Nun

As pretty much all of my $$ are in the US I would be subject to US tax unless I moved all the money which I understand would trigger the exit tax. I didn't have any money when I got here but excluding the house I am in excess of 1M and depending on the timing and the market could be in excess of 2 by the time we would move...if we moved, is the 2M a per person thing? Keeping the house seems the right thing if there is even a slight chance of wanting to move back (mainly for weather concerns as we get older) given the cost of housing around here

If one just lives in Canada as a resident with the majority of the accounts in the US am I correct that we would be legal residences of Canada (and as I am CDN I would not need to get a job presumably) but would have to file in both countries? If I make all my $$ in my US investments and pay US taxes on that does that mean there is no effective CDN income? I realize that the actual taxes need a cross border specialist but right now I am just in a fact finding mode to try and understand the implications and make a good decision when the time comes

[photoguy]

I'm very interested in this topic as I am a dual citizen (born in Canada) and wife is US. However returning to Canada is probably plan B or maybe even C so I haven't researched this much.

If we were to return to Canada, my initial thoughts were to leave all/most assets in the US and bring money over as needed. Investment options are generally more limited in Canada and/or have higher expense ratios. Bogleheadish portfolios for Canadians also seem to recommend a high chunk of US/international investments so might as well have these in the US with lower expense ratios.

Given that the CAD dollar has gone from par to $0.60 to par in my lifetime, I'd probably want to try to hedge currency fluctuations but I'm not sure if there's any feasible way to do this.

Taxes seem extremely complicated -- trying to read up on this just creates more questions than answers. If there are any actual dual filers on this board, would love to hear their input.

Quote:

Originally Posted by nuke_diver Thanks Nun If one just lives in Canada as a resident with the majority of the accounts in the US am I correct that we would be legal residences of Canada (and as I am CDN I would not need to get a job presumably) but would have to file in both countries? If I make all my $$ in my US investments and pay US taxes on that does that mean there is no effective CDN income? I realize that the actual taxes need a cross border specialist but right now I am just in a fact finding mode to try and understand the implications and make a good decision when the time comes

I believe you have to file in both countries. Canada taxes worldwide income:

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You have to report your world income (income from all sources, both inside and outside Canada) earned after becoming a resident of Canada for income tax purposes on your Canadian tax return. In some cases, pension income from outside of Canada may be exempt from tax in Canada due to a tax treaty, but you must still report the income on your tax return. You can deduct the exempt part on line 256 of your tax return. We consider you to have acquired (deemed acquisition) almost all your properties at fair market value on the day you immigrated.

(from revenue canada)

Another issue is that if you were to return to the US after being in Canada, you may subject to Canada's exit tax.

[nun]

Quote:

Originally Posted by nuke_diver Thanks Nun As pretty much all of my $$ are in the US I would be subject to US tax unless I moved all the money which I understand would trigger the exit tax. I didn't have any money when I got here but excluding the house I am in excess of 1M and depending on the timing and the market could be in excess of 2 by the time we would move...if we moved, is the 2M a per person thing? Keeping the house seems the right thing if there is even a slight chance of wanting to move back (mainly for weather concerns as we get older) given the cost of housing around here

If you are a long term permanent resident and exceed the exit tax threshold you will have to pay the exit tax if you expatriate, it doesn't matter where you have your money. The threshold is $2M net worth and you can divide your assets 50/50 with your spouse as she obviously won't be subject to any exit tax. Remember if you give up the GC you will have to apply all over again if you ever want to live in the US again.

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If one just lives in Canada as a resident with the majority of the accounts in the US am I correct that we would be legal residences of Canada (and as I am CDN I would not need to get a job presumably) but would have to file in both countries?

You wife you definitely have to file in both countries. You would only have to file in the US if you had US source income.

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If I make all my $$ in my US investments and pay US taxes on that does that mean there is no effective CDN income? I realize that the actual taxes need a cross border specialist but right now I am just in a fact finding mode to try and understand the implications and make a good decision when the time comes

You will need to investigate the exact situation between Canada and US, but the general principle is that your country of residence has primary taxation authority over your money. You'll have to see how Canada taxes your foreign income and that will probably depend on your Canadian tax residency/domicile status. There will be special rules for retirement accounts, but usually you'll pay your full tax to Canada (may be some specific percentage rules for CGT and dividends) and then take a credit for any US tax due on US source income.

[Meadbh]

Have you read the tax treaty?

Convention Between Canada and the United States of America*With Respect to Taxes on Income and on Capital

[Senator]

I really don't know a damn thing about Canada, but here are my thoughts anyway.

California is a lot warmer than Canada. (+1 to USA)
Favour will be spelled correctly in Canada. (+1 to Canada)

Can you move/spend money as you need it, and keep it where it is? Avoiding any exit tax?

If you become a US Citizen (rather than green card), wouldn't you have a huge exemption of US Income taxes if you lived outside the US? I am not sure what Canada does with US Income if you live there.

Can you allocate any income to the country the person with the citizenship status that taxes it the least? You would probably have to file taxes separately.

[theOAP]

Let's be careful on this thread, we're talking about apples and oranges. Whilst there appears to be a level of understanding of what is being said (and as always, nun is correct), it's also very easy to misinterpret what applies to which.

Situation A is an LTR who establishes a residence in Canada and maintains their US green card by fulfilling the requirements to do so. Two tax returns, but the individual eventually will only be taxed at the rate that applies to the country with the highest tax rate, by use of a double tax agreement. The income in the OP's circumstance will likely be unearned, so no automatic exclusion (FEIE) of a set amount. Tax Credits will be required to help offset double taxation. Filing a joint return is possible. Form 8854 plays no part in this scenario.

Situation B is an LTR who moves to Canada and gives back their green card. Form 8854 will come into play. Read the instructions for 8854 carefully. Having net assets of $2 million can come about very easily. A substantial pension plan, the equity in a decent property, and additional assets in investments may mount quite quickly. Form 8854 is for an individual only and jointly owned property/investments may be subject to special rules. If tax is owed and deferred, Code sections 877 and 877A basically over-ride any tax treaty, and therefore any benefit from the treaty. If someone were to select this route, a thorough understanding of 8854 is required.

Form 8854 treats the individual as if they had died. Assets are valued as of the time of leaving on an mark to market basis. The only trouble is the threshold is $2 million and fixed, not $5 million+ and moving upwards each year as applies to the inheritance tax.

Having said that, it's not certain how closely the IRS is monitoring 8854 filings for those near the threshold, or how seriously they take 8854 as applied to the average punter. Leave the US with $100 million (located anywhere) and they would probably be very interested. YMMV.

Also, turning in a green card does not require the individual to remove all assets from the US. The funds may remain there, and the IRS will enjoy taxing any income they generate; BUT, be aware of what happens if the individual dies with assets/property still located in the US.

[nun]

Quote:

Originally Posted by Senator If you become a US Citizen (rather than green card), wouldn't you have a huge exemption of US Income taxes if you lived outside the US? I am not sure what Canada does with US Income if you live there.

US citizens are taxed on their worldwide income wherever they live. The IRS allows a certain amount of foreign earned income to be excluded from US taxation or credit to be taken for foreign taxes paid.

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Can you allocate any income to the country the person with the citizenship status that taxes it the least?

No, you have to follow the rules according to citizenship, residency, domestic laws and the double taxation agreement.

[Rob]

I live in Blaine, Washington, which with the Nexus card allows me to travel to Vancouver in about 30-35 minutes on a good day. I'm American, but my closest friends are in Vancouver, so I go back and forth all the time. My neighbors in Blaine are either dual citizens or green card holders. Some live in Blaine and work in Vancouver.

Rob

[nun]

If you do have assets in the US and move abroad you should check if the financial firms where you hold your assets will allow you to keep and use the account with a foreign address. You should also understand how your new country of residence taxes those US assets....sometimes there are nasty rules about holding foreign mutual funds.

[nuke_diver]

Quote:

Situation A is an LTR who establishes a residence in Canada and maintains their US green card by fulfilling the requirements to do so. Two tax returns, but the individual eventually will only be taxed at the rate that applies to the country with the highest tax rate, by use of a double tax agreement. The income in the OP's circumstance will likely be unearned, so no automatic exclusion (FEIE) of a set amount. Tax Credits will be required to help offset double taxation. Filing a joint return is possible. Form 8854 plays no part in this scenario.

I think initially it would be this...as there is a possibility of returning due to weather (or marital bliss :P). My GC will not need renewal until ~2025 so there would be no hurry if we moved there, in say 5 years, to make a decision immediately.

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If you do have assets in the US and move abroad you should check if the financial firms where you hold your assets will allow you to keep and use the account with a foreign address. You should also understand how your new country of residence taxes those US assets....sometimes there are nasty rules about holding foreign mutual funds.

I suspect there will be a lot of things that would need to be worked out/understood before/during/after any such move/decision. Which is one of the reasons for asking now...gives us a lot of time to understand and then consider the best/most desirable course of action.

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I live in Blaine, Washington, which with the Nexus card allows me to travel to Vancouver in about 30-35 minutes on a good day. I'm American, but my closest friends are in Vancouver, so I go back and forth all the time. My neighbors in Blaine are either dual citizens or green card holders. Some live in Blaine and work in Vancouver.

Bellingham is what is being considered now as my wife is a big city girl and going to a small town might be worse than going to another country :P...she's already moved countries a couple of times

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Have you read the tax treaty? Convention Between Canada and the United States of America*With Respect to Taxes on Income and on Capital

I'm trying to read this...thanks for the link...unfortunately it appears to be written in a language that appears to be similar to english but is somehow still undecipherable :O

[nun]

Quote:

Originally Posted by nuke_diver I'm trying to read this...thanks for the link...unfortunately it appears to be written in a language that appears to be similar to english but is somehow still undecipherable :O

Tax treaties all read pretty much the same...there's a lot of boiler plate language. The most important article is right at the front and has the "saving clause" which basically says that the treaty does not apply to US citizens apart from a few specific paragraphs.

[kcowan]

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Originally Posted by photoguy I believe you have to file in both countries. Canada taxes worldwide income: ... Another issue is that if you were to return to the US after being in Canada, you may subject to Canada's exit tax.

Yes you will have to file in both places. You might want to transfer enough money to get the $2000 deduction for pension income. There is also an age deduction.

Exit taxes in both countries only apply to money that you move out of the country. Leave your $1-2 million in the US.

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Originally Posted by theOAP Let's be careful on this thread, we're talking about apples and oranges. Whilst there appears to be a level of understanding of what is being said (and as always, nun is correct), it's also very easy to misinterpret what applies to which. Situation A is an LTR who establishes a residence in Canada and maintains their US green card by fulfilling the requirements to do so. Two tax returns, but the individual eventually will only be taxed at the rate that applies to the country with the highest tax rate, by use of a double tax agreement. The income in the OP's circumstance will likely be unearned, so no automatic exclusion (FEIE) of a set amount. Tax Credits will be required to help offset double taxation. Filing a joint return is possible. Form 8854 plays no part in this scenario .... Also, turning in a green card does not require the individual to remove all assets from the US. The funds may remain there, and the IRS will enjoy taxing any income they generate; BUT, be aware of what happens if the individual dies with assets/property still located in the US.

Yes I would keep the GC as they might be hard to get in the future. You will be subject to US Estate taxes upon death but the exemptions are high enough to ignore for the present. Canada has no estate nor gift taxes.

Quote:

Originally Posted by nun If you do have assets in the US and move abroad you should check if the financial firms where you hold your assets will allow you to keep and use the account with a foreign address. You should also understand how your new country of residence taxes those US assets....sometimes there are nasty rules about holding foreign mutual funds.

Your US investment account will be frozen when you establish Canadian residence. You can probably negotiate a suitable arrangement. Many Canadians hold US mutual funds because of their low MERs. And switches within fund families can be accomplished for Asset Allocation reasons.

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Originally Posted by nun Tax treaties all read pretty much the same...there's a lot of boiler plate language. The most important article is right at the front and has the "saving clause" which basically says that the treaty does not apply to US citizens apart from a few specific paragraphs.

Many US Persons living in Canada have had to file US tax returns so there are plenty of accountants who know the ropes. I expect after a year or two, TurboTax will be all you need (both versions).

I expect you will pay less taxes overall provided that you escape Cal. taxes. The tax treaty is pretty good.

[Meadbh]

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Originally Posted by kcowan Yes you will have to file in both places. You might want to transfer enough money to get the $2000 deduction for pension income. There is also an age deduction.

If the OP is under 65, the deduction for pension income has conditions which may exclude him.

Can you claim the pension income amount?

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Originally Posted by kcowan I expect you will pay less taxes overall provided that you escape Cal. taxes. The tax treaty is pretty good.

BC taxes are relatively low. Remember the OP will have to pay health premiums (currently $125.50 per month for a couple).

MSP - Premiums

Bottom line: it's all very doable and economically feasible, just requires planning.

[theOAP]

Quote:

Originally Posted by kcowan Exit taxes in both countries only apply to money that you move out of the country.

Do you have a cite or a reference for this statement as it applies to the US and form 8854? I would be most interested in the source.

[nun]

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Originally Posted by kcowan Your US investment account will be frozen when you establish Canadian residence.

The status of any US financial accounts will depend on the policies of the companies you deal with.

[nuke_diver]

These two comments are very interesting

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I expect you will pay less taxes overall provided that you escape Cal. taxes. The tax treaty is pretty good.

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BC taxes are relatively low. Remember the OP will have to pay health premiums (currently $125.50 per month for a couple).

Paying 125 a month is significantly cheaper than what I would need to pay here for health care. I was thinking that that might offset the tax/COL difference but if the taxes are similar that might change things more than I thought.

More food for thought

[Meadbh]

Quote:

Originally Posted by nuke_diver These two comments are very interesting Paying 125 a month is significantly cheaper than what I would need to pay here for health care. I was thinking that that might offset the tax/COL difference but if the taxes are similar that might change things more than I thought. More food for thought

You may want to model your Canadian income taxes on one of these calculators.

TaxTips.ca - Canadian Financial and Income Tax Calculators

[nuke_diver]

Thanks Meadbh...if I'm doing it correctly it would indeed suggest lower taxes if the income is only CG and interest/dividends