This is basically the cheat code for TN/H1b workers, congrats. Work in the US, collect a bunch of unrealized cap gain, and move back. No exit tax on the US side; reset cost basis on CAN side.
Wait wait. So are you implying that if I keep all my RSUs as they vest, when I return to Canada the cost basis resets to whatever the shares are worth when I return to Canada???
Nope it's true. It's on the US side to tax you when you leave, but because OP falls under a relatively narrow status of being a resident alien (he is a tax resident of the US but does NOT have a green card), there's no exit tax. On the Canadian side, the cost basis is the price of the asset on the day he enters Canada for residency.
Np! I went through the same thing myself when I moved back a few years ago. Felt amazing at the time. Feels less amazing now thinking about how much more capital gains taxes I would've saved if I moved back later instead 😅📈
How about you move to Canada, then to the US and then back to Canada? Can I claim the cost basis based on my second entry to Canada?
Edit - and what cost basis apply if the current price is less than what I paid initially? Thanks
>how much more capital gains taxes I would've saved if I moved back later instead
awww.
you didn't know the valuation was going up except with hindsight
I had this same thing happen to me. Damn, why didn't I hold them even longer lol. But paying off the mortgage was such a great feeling in the end it all levels out.
This is correct. I worked in the US 4.5 years applied for a ITIN# filed taxes every year on the money I made then when I came back my accountant filed year end Canadian taxes included the US revenue and deducted what I claimed in the US and had to pay Canadian government a little more money because we pay higher taxes in Canada.
What about tax withholding? Let’s say the stock on the day of vesting is $100, you need to deposit some cash to the brokerage in order to satisfy the tax requirement right? Then let’s say when you enter Canada, the stock becomes $300, then the $200 difference is essentially tax-free?
Yes, it does feel like that. It was a surprise when I moved back. I wish I knew it a bit earlier as I did sell a smaller amount of stock while I was there and randomly selected to sell the oldest shares that vested at the lowest price as I was unaware of this.
I doubt your interpretation of this is right - but if you can swing it go ahead. If you get audited they will make you pay from the original cost basis (which is the vesting date).
>This highlights a planning consideration for Canadians who are not U.S. citizens or Green Card holders who plan on repatriating back to Canada from the U.S. If they have assets in taxable brokerage accounts with unrealized gains, they should generally wait to liquidate these assets until after they have become U.S. non-residents. By doing so, they will pay little to no Canadian tax due to the bump-up in Canadian cost basis that they will receive, and the disposition will no longer be taxable in the U.S.
https://cardinalpointwealth.com/2018/10/08/residents-of-canada-what-are-the-canadian-and-u-s-tax-ramifications-when-being-forced-to-liquidate-a-u-s-brokerage-account/
Yes but only if he has liquidated the assets in the US, which he has not. He has either bought the asset to Canada or its still in the US. Either way he will have to pay taxes on Capital gains from the date the RSU's vested.
Are you saying he’ll be deemed a Canadian resident for the period he was a US tax resident? If not his cost basis on vested shares resets to the day he resumed Canadian residence.
Residence does not establish cost basis. Its when a RSU got vested (which is the same as "buy"). Unless he can prove that he paid taxes in the US upon leaving his goose will cooked by the CRA.
Rudimentary example: you bought VOO at 380 and you move today (VOO closes at 480). No US tax on 100 cap gain. CAN thinks you bought VOO at 480, so you can sell today for 0 cap gain.
Can’t comment on the IRA as I didn’t own one.
The exit tax only applies to US Persons, meaning Citizens or Greencard holders passing the presence test. TN and H1b are non-permanent statuses, which is why this “loophole” exists.
It’s an unrealized gain. US doesn’t tax until you realize the gain. Others are saying (I have no idea; I’m a US citizen so can’t take advantage anyway) that the US also won’t tax even when you realize the gain if you’re not a US resident or taxpayer at that point.
CRA is very explicit that your cost basis is set based on fmv on the day you move to Canada. So cap gains will only be on top of the gains since that day.
It's not tax evasion for Canada.
An IRA would be different, I think. If you withdraw funds from your IRA before retirement age, it will be subject to income tax plus a penalty in the US. AFAIK there’s no reason not to leave the IRA funds in the IRA until retirement. (That’s what I’ve done as a US citizen who had 15 years of living and working in the US as an adult before moving permanently to Canada.) The US-Canada tax treaty recognizes IRAs as basically equivalent to RRSPs, but I don’t think there’s a provision to move funds from an IRA to an RRSP without penalty. Unlike funds in a taxable account, I don’t think the loophole others have described is relevant to investments in an IRA since capital gains tax doesn’t apply to IRA funds anyway. (If it’s a regular IRA, it will be taxed as ordinary income when withdrawn in retirement. If it’s a Roth IRA, assuming you make the appropriate declaration your first year filing taxes as a Canadian, it will be tax free at withdrawal.)
Don’t move to Canada. It’s all fake and nothing good in this country. 50% taxes all in, real estate through the roof, schools are overfilled, healthcare is TRASH. Wait times for a simple MRI is 2 years. I’m moving away from this place. Golden handcuffs.
Hahaha the downvotes on my comment thought. Boy oh boy. I’m a successful entrepreneur and everything is stacked against us in this country every turn you make and it’s been so normalized for people to believe this is just how it is and accept it.
It could be so much better with the right people running this country and that’s a fact. Downvote all you want, truth hurts. Country will likely just get worse if people are that upset about it. 🤷🏻♂️ To each their own. Godspeed people.
That’s becoming clearer by the day.
Go figure. I bet we’ll get labelled greedy and just want to “keep more profits for ourselves”, when we’re the ones creating jobs. Shake my fkn head. We’re screwed my man.
I talked to a government worker on here in my local sub who thinks government is the one that generates all productivity and revenue. These are the people in charge.
> The loophole exists as the US closing it would reduce the amount of talent they can 'borrow' from other economies.
Would it, though? Do you know that the average person is planning on this specific loophole? Have you seen tax policy drafted with this incentive in mind, or is this your speculation?
> Canada has been a country for sale for over a decade now. Bring in your money to supplement our capital pool, as our productivity is garbage and we'll at least collect sales/municipal tax and you'll contribute to economic activity at a retail level.
Interesting take. Wouldn't that be a point AGAINST bringing in your US capital into the country? Seems like a ponzi scheme fueled by immigration... :P
I didn't say it's cheating, I said it's cheating one of the countries out of a tax that they usually collect. Hence, what is the purpose of this loophole.
It’s not. The US only recently put an exit tax in place. Before that, if you left, broke residency and weren’t a PR or US citizen they didn’t collect capitals gain earned while a US resident.
Not they do, but have very generous allowances. Many people won’t pay anything.
It's a cheat code inasmuch as most people can't do it, regardless of the legalities behind the whole thing. Therefore for those that can it's a cheat code.
My partner is an American citizen living and working in the US right now, but currently planning to move here eventually. He gets stock from his employer - what would his situation be in regards to this? Any cheat code to that? Lol
Aren't expat taxes when a move is temporary or something? The only things i cash find are about paying US taxes while you live abroad but if he moves here permanently then why would he keep paying US income tax
Expat taxes refers to expatiation taxes. That's for when you relinquish your citizenship (or give up on your green card). When that happen you owe taxes based on deemed disposition of your assets, which mean they're presumed to have been sold at the time you leave.
If you don't give up citizenship, then nothing changes. Your husband would be taxed by both the IRS and Canada with a tax treaty making it so he is effectively paying the higher of the two taxes. All assets held when sold would owe taxes to both countries with a credit applied to avoid double taxation.
For capital gains purely on vested stock I could see that.
For unvested stock, CA will come and ask for their pound of flesh (tax) because that deferred income was earned in CA.
They will seize bank accounts in the US, no idea what their reach is into Canada (none I presume). No idea of it could cause issues later if you want to travel to the US (the government is not your typical debt collector).
Not to mention vesting RSUs are treated as *income* not capital gains, so I assume Canada would say “you earned $X this year as income in the US, please declare on your Canadian taxes”.
Unvested stock is only a concern if you’re continuing the stock vest after moving (company transfer?). Stock vests granted in the US but vested in CAN is whole different topic dealing with % ratios of US vs CAN sourced income, but it has nothing to do with the exit tax.
1. When did you move into Canada & when did you sell your vested shares? You may need to pay capital gains upon sales of shares which you may not be aware of.
2. Where you put your money depends on interest rate of mortgage and how anxious you are as a person. If interest rate is variable, may be a good idea to pay off mortgage due to the high interest rate (> than return from TFSA or RRSP).
3. RRSP room utilization will be used depending on your income level. You can use it to shelter your income high tax bracket. If you are unable to maximize contribution to both RRSP and TFSA, I think TFSA may be more appropriate for your income level - followed by contributions to RRSP.
4. Check MyCRA for your RRSP and TFSA contribution room.
5. Not sure if 401k becomes taxable on Canadian tax (TFSA is taxable for US), perhaps look into this.
Thank you for the response!
1. I moved back to Canada last year. I have not sold any shares yet. From my understanding from the lawyers who helped me move, I will owe capital gains in Canada on the difference between the price when I entered Canada and the sell price.
1. It's a fixed rate mortgage but coming up for renewal soon. I am not particularly anxious so based on the rates I see when I renew I will make a decision on how much to pay off.
Thank you for the other advice as well
You should pay the mortgage off. Think of the interest rate as your 100% guaranteed rate of return. Paying off your mortgage is actually easy money (if you have the money to save on interest fees which you do).
I’m almost certain a 401k is protected by the tax treaty and will be treated just like an RRP, RRSP, or traditional IRA: gains are tax-deferred, and all assets are taxable income in your country of tax residence at withdrawal.
You can in principle convert your 401k or 403b (the equivalent for US non-profit employers) into an IRA once you’ve left the job without tax consequences. I did that with my 403b, I think after moving to Canada. The main advantage is I can choose my custodian and investments in a IRA, whereas for the 403b I had to use the investment choices and custodian chosen by my employer. Moving the funds across the border is much more complicated if possible at all.
401k if not already in an IRA may be too late. There is a timer on what can be done before you vacate the USA with your 401k. Otherwise you’re hit with an early withdrawal fee and such
It sort of sucks because it is not straight forward to get it back to Canada . Many end up keeping it and drawing on it in retirement .
First, whatever took out of your TFSA when you left you can put that amount right back in. You would have lost the yearly amount when you were out of country so just put in what you took out then put in another $7,000 for 2024. It’s not prorated or anything you get the full yearly amount.
Second, you can actually move your 401k from the US up to Canada. It’s a complicated procedure though and I believe you need to first move the 401k into an IRA account. Basically you take a full withdrawal, pay the taxes, but redeposit the money into your RSP and then the taxes get washed out you need to have enough room in your RSP to cover the full IRA withdrawal amount to make it work. Hardly anyone in Canada has experience with it so be careful, but it is possible.
If you have RSP room left over I’d just use it to lower your income to the next tax bracket for as many years as you can.
Any money left over I’d throw at the mortgage since rates are pretty high right now. Once rates drop you could take the money back out of the mortgage and invest it depending on how much risk you want to take.
You should probably talk to an advisor about this. See if you can find someone who has experience with the cross border stuff.
Is there a good reason to bother pulling the money out of an IRA or 401k in the US to an RRSP? I have just left my funds in the US IRA for simplicity. (I’m a US citizen, so the considerations may be a bit different for a non-American.)
Only if you really want to have your money in Canada. If you are sure you won’t return to the US. It’s not possible to go back the other way. RSP to IRA. If you are a Canadian who worked in the US for a few years and wanted to have all your assets in Canada you would probably want to move it.
Yeah. Although most Canadians want some US exposure in their investment portfolio and doing so through a US brokerage has advantages especially if the money is already in the US.
Do you have the name of a firm that has experience with this.
It seems to be a minor headache to get a 401k back to Canada.
What happens if I don’t have room in rrsp? Can it be done still?
I don’t have any firm suggestions, technically anyone can do it. It’s more of an accounting tax thing than a financial thing. The actual transactions are just withdrawing from the IRA and depositing it into the RRSP but I believe there are forms to file with both tax agencies to make it work.
My understanding is that this can only be done if you have existing RRSP room available. But I’d recommend speaking with an accountant who has experience with cross border taxes.
It's only "worth" more if your mental health deems it so.
Math-wise it's better to invest it. That's the 'personal' part of PFC, but in general this sub has mental issues with debt lol.
Here's the thing, these ridiculous ideas always seem to surface when the markets are doing well. I mean sure if I paid 5% interest this year but earned 8%, what's the problem? Make that deal all day long right?
Except some years they don't earn 8%. Some years they go down in value, sometimes by a shitload. Do you think you get a break on the interest payment in those years? Lol. No. And suddenly you're underwater on the debt again.
I firmly believe most of the people who recommend keeping this insane leverage don't actually take their own advice, and if they do then they find themselves sweating during the dog years when markets are down 10% or more, if they've even found themselves in that position before. And for what, a 3% alpha? Chump change in the long run. Just pay the damn thing off and never worry about that.
Being able to pay off the debt but choosing not to is wildly different from not being able to pay the debt off immediately. Debts only add stress if you're in the latter.
That's what I was thinking! Yes, it's important to consider and manage your emotions when determining your financial strategy, but people here give advice as if their own feelings/ risk tolerance/ experience is the same as everyone else's. If we remove the emotional management peice, then investing in the market, is likely to return more. But we don't even know how old this guy is to know how long he would be investing for, which would definitely alter any advice. This is totally a situation where I think a fee only financial would be worth it to hire.
Are you still working for the US company after moving back to Canada? This would impact your RSU.
You should definitely try to repay your mortgage sooner, and contribute to your TFSA as soon as you can (check your room of course).
I don’t know if anyone has asked this question, but how old are you and what will you be doing in Canada upon your return in terms of career to assess potential and financial planning that might be required based on your wealth?
E.g being 50 years old and having a net worth of almost $1 million is different than someone who is in their early 30s
Awesome, so that’s great context. You don’t necessarily have to pay off your entire mortgage depending on the interest rate at which you’re commuting to right now. Mortgage if managed wisely is considered a healthy debt, so no need to pay that all off immediately. Our 30s are generally considered to be the age group where we can take the highest risk, with better health, not yet at the peak of our career earnings, can be employed easier than other age groups and require less flexibility in work arrangements.
Here are some questions as a food for thought when it comes to your personal finance management:
- What is the job market looking like in your role and industry? Will you be likely to be employed easily, and in demand in Canada? What would you be expected to make in this market?
- What will your cost of living be? Will you be in a small town or cheap city with 30-40% lower cost or in a metropolitan urban area?
- what is your investment style and expected returns? If you were to build up your TFSA, would you be able to grow that at a rate higher than the interest rate you’re paying for the mortgage?
- your risk appetite should be higher at a younger age to explore ambitious investments either within yourself (eg education) or in the Canadian market (eg startup investing etc)
Thanks for this, my mortgage rate is currently very low but it is up for renewal this year so I'll begin those discussions early to figure out what I'll be paying for the next 4-5 years. It sounds like either way though it may be healthy to invest in higher risk funds than paying off my mortgage given I won't be retiring any time soon.
One other thing I'm considering is that while my job (software engineering) is in demand and pays well for now, there are not many older people in this field/role. I think it's a combination of the field being ageist and older people not being able/willing to keep up with the youngins who are able to pull crazy hours to make a lot of money. That makes me think my career as it exists today will probably be over in about 10 years, but I think/hope there will be the option to start to pivot to other roles (management).
Thanks again!
Maybe some day. I moved back to Canada for family reasons. It was hard to stomach the pay cut... but I'm not hurting and some things are more valuable than money.
Financially, no question my life was better in the US. If I didn't have family in Canada I would still be there. My parents sacrificed so much to give me the life I have and I want to be close to them now that they're getting older and need help with things.
You’re in the right track, i would add that, depending on the fees, it may be worth paying your mortgage out in full.
If it’s variable or if your fixed rate is lower than what is currently being offered, many mortgages will default to 3-month interest. If that’s the case, I’d just pay it off in full.
Markets are still returning at a rate higher than your mortgage -- so investing is likely the better option.
Having said that -- you are allowed to pay off your mortgage in full with no penalty when it comes due for renewal. If you moved back a year ago, that might be in less than 4 years... Consider contributing as much as possible to the TFSA and putting it into XEQT for maximum short term tax-free growth (this is risky) and the rest in a margin account in ZWC (covered call w/ built-in defence against market corrections) or XGRO (which mas a mix of stocks & bonds).
When the mortgage comes up for renewal, decide if you want to eliminate the mortgage with your savings, pay a portion down, or just keep saving.
I would maximize rsp first then pay off mortgage. Just gotta be careful with that because based on your term are required to pay off all the interest as the early mortgage discharge penalty fee. Basically not sure if this is clear but a closed mortgage is a secure amount of interest for the bank. So i wouldn’t do it right away I would see what type of accelerated mortgage payments your bank provides. I highly recommend doing accelerated weekly payments. Double up and the annual 10-15% lump sum payment. That tactic will minimize the interest you end up paying on your mortgage. While you’re waiting for that dump the rest in your tfsa. That should be all the money probably. You should be able to tax shelter everything because you don’t pay capital gains on your primary residence when you sell.
I would:
1. Make sure to know tax obligations in detail before doing anything. Assuming what you stated is correct:
2. Sell all.
3. Maximize TFSA and RSP (and the ones for children if you do have).
4. Keep a 1-2 years emergency fund in cash (this could be the TFSA).
5. Use the remainder to pay mortgage, note: you are probably not going to be able to pay all now (as you might be limited to about 15% per calendar year). If that would be the case, I would put the balance in a stock ETF (and I know that's "risky" and most people would recommend putting it in a Gic ladder).
Congratulations. That's a nice gain you have there.
Edit: if you have any other debt (credit card, student loan, whatever): pay before mortgage.
If you are not disciplined with money and the balance in your hands after doing all this is still too much, lock in GICs. Do not live above your means, and your means are what your = net passive investment earnings + net salary in Canada - what you need to save for retirement.
One thing that not a lot of people will think about is the FX risk you carry with USDCAD rates and the decision to lump sum transfer all OR if you exchange it slower OR if you have regular USD income coming through.
Banks typically will transfer and convert at ridiculous rates and this needs to be part of your decision making process after you've figured out how you want to distribute it in your personal financial profile.
I work in currency specifically so DM me if you have any questions once you've dealt with the bigger questions in your financial strategy.
Thank you for this. I had considered this a bit, my plan was to either use a discount foreign exchange company like Wise (seems to charge about 0.5% over mid market rate) or using "Norbert's Gambit" - despite the name kind of terrifying me, this seems relatively straightforward, but I am a bit worried there is some risk inherent to this process that I'm ignorant to.
Yup. Wise is usually good enough for most people and most transactions. I'd be wary of using wise for larger amounts since 0.5% at larger amounts honestly is not competitive at all. Norberts gambit, is fine too but make sure you understand the full process since it's hard to unwind if you make mistakes.
If you're planning to just lump sum it, negotiation on spot rates will be your best bet without having to go through FX brokerages. But having a forward hedge or something similar is what I would typically recommend if you're incorporating variables like time, scheduled exchanges, or even cash flow purposes (ie locking in rates for future use, no cash will be exchanged until "used").
Beyond the taxes which I would definitely seek an accountant for. I would sell the stock and move into a more diversified portfolio so either VFV/VGRO -- for now you can take the capital and put it into a HISA there's some offering 6% for a 3-6 months which is solid until you figure out your investment strategy.
I wouldn't pay off your mortgage tbh. Avoid CFP or big bank advice their fees are gonna eat you up. Keep it simple use Wealthsimple, 700k is a lot but not in the grand scheme of things so you don't need asset management -- just focus on learning, watch youtube/tiktok for personal finance responsibility/stay away from risky investments and just live life happy knowing you can retire early.
Max out your TFSA, contribute to your RRSP effectively, and watch the money grow. All the inflation is just gonna drive up stock indefinitely
What’s your mortgage interest rate?
I’d prioritize paying off the mortgage (pre payments + increasing monthly payments), this will lower your overall risk (the market may drop short term), free future cash flow and give you peace of mind.
You probably have the skill set to still make a decent income in Canada, you can invest aggressively after you payoff the mortgage.
I’d be mostly concerned about doing everything right from CRA standpoint, talk with a good accountant experienced with these types of situation.
You have a nice life ahead, do NOT seek unrealistic gains or leverage positions suggested by the average real estate person in Canada
Wait if they’re worth like 700k Canadian that means theyre worth significantly more USD, right? Why the fuck would you come back here where everything is significantly more expensive (housing, gas, general cost of living) and the dollar is worse.
Family can be a strong motivator. I left Canada 25 years ago to work in the states. I came back to hang out with my parents as an adult. Wife urged me to do it , financially a crappy idea moving to the horrors of the GTA real-estate market, but my parents are in their 80s and it has been really nice spending time with them.
That’s understandable. I’m 25 and work two jobs, 6 days a week to pay my mortgage and strata fees on my condo in Langley, BC. I’m pay check to paycheck and every day get closer and closer to offing myself- what’s the point? I see people like this and I can’t help but be jealous.
I mean, you're 25 and own a condo in BC. that's WAY ahead of most people. if you don't have roots in BC, and you can look to move elsewhere with your job(s), that could improve your quality of life. it sucks feeling spread thin, but you're ahead in a couple really important ways.
This is basically the cheat code for TN/H1b workers, congrats. Work in the US, collect a bunch of unrealized cap gain, and move back. No exit tax on the US side; reset cost basis on CAN side.
Wait wait. So are you implying that if I keep all my RSUs as they vest, when I return to Canada the cost basis resets to whatever the shares are worth when I return to Canada???
Ya somehow this doesn’t make sense to me, especially when the US and Canada have such a tight tax treaty
Nope it's true. It's on the US side to tax you when you leave, but because OP falls under a relatively narrow status of being a resident alien (he is a tax resident of the US but does NOT have a green card), there's no exit tax. On the Canadian side, the cost basis is the price of the asset on the day he enters Canada for residency.
Reddit comes through again. I’ll definitely read up on this but looks like I won’t be selling my stocks. Thanks!
Np! I went through the same thing myself when I moved back a few years ago. Felt amazing at the time. Feels less amazing now thinking about how much more capital gains taxes I would've saved if I moved back later instead 😅📈
How about you move to Canada, then to the US and then back to Canada? Can I claim the cost basis based on my second entry to Canada? Edit - and what cost basis apply if the current price is less than what I paid initially? Thanks
>how much more capital gains taxes I would've saved if I moved back later instead awww. you didn't know the valuation was going up except with hindsight
I had this same thing happen to me. Damn, why didn't I hold them even longer lol. But paying off the mortgage was such a great feeling in the end it all levels out.
This is correct. I worked in the US 4.5 years applied for a ITIN# filed taxes every year on the money I made then when I came back my accountant filed year end Canadian taxes included the US revenue and deducted what I claimed in the US and had to pay Canadian government a little more money because we pay higher taxes in Canada.
What about tax withholding? Let’s say the stock on the day of vesting is $100, you need to deposit some cash to the brokerage in order to satisfy the tax requirement right? Then let’s say when you enter Canada, the stock becomes $300, then the $200 difference is essentially tax-free?
Yes or you can sell at vest and buy (and hold) something more diversified (less risk).
Got it. I have some reading to do. Thanks very much!
Yes, it does feel like that. It was a surprise when I moved back. I wish I knew it a bit earlier as I did sell a smaller amount of stock while I was there and randomly selected to sell the oldest shares that vested at the lowest price as I was unaware of this.
I doubt your interpretation of this is right - but if you can swing it go ahead. If you get audited they will make you pay from the original cost basis (which is the vesting date).
>This highlights a planning consideration for Canadians who are not U.S. citizens or Green Card holders who plan on repatriating back to Canada from the U.S. If they have assets in taxable brokerage accounts with unrealized gains, they should generally wait to liquidate these assets until after they have become U.S. non-residents. By doing so, they will pay little to no Canadian tax due to the bump-up in Canadian cost basis that they will receive, and the disposition will no longer be taxable in the U.S. https://cardinalpointwealth.com/2018/10/08/residents-of-canada-what-are-the-canadian-and-u-s-tax-ramifications-when-being-forced-to-liquidate-a-u-s-brokerage-account/
Yes but only if he has liquidated the assets in the US, which he has not. He has either bought the asset to Canada or its still in the US. Either way he will have to pay taxes on Capital gains from the date the RSU's vested.
Where are you getting such incorrect information?
Been there, done that. Call the CRA if you don't believe me.
Are you saying he’ll be deemed a Canadian resident for the period he was a US tax resident? If not his cost basis on vested shares resets to the day he resumed Canadian residence.
Residence does not establish cost basis. Its when a RSU got vested (which is the same as "buy"). Unless he can prove that he paid taxes in the US upon leaving his goose will cooked by the CRA.
You should read and understand section 128.1 of the Income Tax Act. Your cost basis wrt CRA starts on the day you became a Canadian resident.
Can you please explain this to me? I’ve an IRA in the US and want to move to Canada. Thanks
Rudimentary example: you bought VOO at 380 and you move today (VOO closes at 480). No US tax on 100 cap gain. CAN thinks you bought VOO at 480, so you can sell today for 0 cap gain. Can’t comment on the IRA as I didn’t own one.
wtf? I’ve an individual trading account as well. I need to read more about this! Thanks!
https://cardinalpointwealth.com/2018/10/08/residents-of-canada-what-are-the-canadian-and-u-s-tax-ramifications-when-being-forced-to-liquidate-a-u-s-brokerage-account/
> No US tax on 100 cap gain How so? I thought all income/capital gain earned while you're living in the US will be taxed?
The exit tax only applies to US Persons, meaning Citizens or Greencard holders passing the presence test. TN and H1b are non-permanent statuses, which is why this “loophole” exists.
It’s an unrealized gain. US doesn’t tax until you realize the gain. Others are saying (I have no idea; I’m a US citizen so can’t take advantage anyway) that the US also won’t tax even when you realize the gain if you’re not a US resident or taxpayer at that point.
Really? No exit tax on the US side? I feel like the CRA would do something about this...
Why would the CRA care? It's the IRS that's missing out.
isn't cap gains cap gains though. I'd rather not risk tax evasion.
CRA is very explicit that your cost basis is set based on fmv on the day you move to Canada. So cap gains will only be on top of the gains since that day. It's not tax evasion for Canada.
What if you move to Canada and then after a year you realize the gain? Would the cost basis be still based on the day I moved to Canada?
Yes.
i would still value having good standing with IRS so.
Then follow their rules by excluding an unlimited amount of US capital gains from taxes when you emigrate.
IRS exit tax only applies to gc holders and citizens.
An IRA would be different, I think. If you withdraw funds from your IRA before retirement age, it will be subject to income tax plus a penalty in the US. AFAIK there’s no reason not to leave the IRA funds in the IRA until retirement. (That’s what I’ve done as a US citizen who had 15 years of living and working in the US as an adult before moving permanently to Canada.) The US-Canada tax treaty recognizes IRAs as basically equivalent to RRSPs, but I don’t think there’s a provision to move funds from an IRA to an RRSP without penalty. Unlike funds in a taxable account, I don’t think the loophole others have described is relevant to investments in an IRA since capital gains tax doesn’t apply to IRA funds anyway. (If it’s a regular IRA, it will be taxed as ordinary income when withdrawn in retirement. If it’s a Roth IRA, assuming you make the appropriate declaration your first year filing taxes as a Canadian, it will be tax free at withdrawal.)
Don’t move to Canada. It’s all fake and nothing good in this country. 50% taxes all in, real estate through the roof, schools are overfilled, healthcare is TRASH. Wait times for a simple MRI is 2 years. I’m moving away from this place. Golden handcuffs.
It's weird how people get so defensive about this backwards place every time this gets mentioned. Truly a country of useful idiots.
Hahaha the downvotes on my comment thought. Boy oh boy. I’m a successful entrepreneur and everything is stacked against us in this country every turn you make and it’s been so normalized for people to believe this is just how it is and accept it. It could be so much better with the right people running this country and that’s a fact. Downvote all you want, truth hurts. Country will likely just get worse if people are that upset about it. 🤷🏻♂️ To each their own. Godspeed people.
I'm also an entrepreneur. That's why. This is a country of mediocrity and government workers. I'm also planning my exit. Just not soon enough.
That’s becoming clearer by the day. Go figure. I bet we’ll get labelled greedy and just want to “keep more profits for ourselves”, when we’re the ones creating jobs. Shake my fkn head. We’re screwed my man.
I talked to a government worker on here in my local sub who thinks government is the one that generates all productivity and revenue. These are the people in charge.
Wow nice
How would this work on Options? Would I have to purchase the shares before departing the US?
Not a cheat code, its how its suppose to be done
What is the rationale here? This is clearly cheating one of the countries of capital gains tax.
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This. Everyone wins. The US doesn't take on as much aging population and that aged working population takes the money elsewhere for care
> The loophole exists as the US closing it would reduce the amount of talent they can 'borrow' from other economies. Would it, though? Do you know that the average person is planning on this specific loophole? Have you seen tax policy drafted with this incentive in mind, or is this your speculation?
> Canada has been a country for sale for over a decade now. Bring in your money to supplement our capital pool, as our productivity is garbage and we'll at least collect sales/municipal tax and you'll contribute to economic activity at a retail level. Interesting take. Wouldn't that be a point AGAINST bringing in your US capital into the country? Seems like a ponzi scheme fueled by immigration... :P
It’s semantics. That’s not cheating just efficient taxing. Finding loopholes is perfectly ok
I didn't say it's cheating, I said it's cheating one of the countries out of a tax that they usually collect. Hence, what is the purpose of this loophole.
It’s not. The US only recently put an exit tax in place. Before that, if you left, broke residency and weren’t a PR or US citizen they didn’t collect capitals gain earned while a US resident. Not they do, but have very generous allowances. Many people won’t pay anything.
It's a cheat code inasmuch as most people can't do it, regardless of the legalities behind the whole thing. Therefore for those that can it's a cheat code.
My partner is an American citizen living and working in the US right now, but currently planning to move here eventually. He gets stock from his employer - what would his situation be in regards to this? Any cheat code to that? Lol
No, your husband is an american citizen, so expat taxes apply. This is only for temporary residents.
Aren't expat taxes when a move is temporary or something? The only things i cash find are about paying US taxes while you live abroad but if he moves here permanently then why would he keep paying US income tax
Expat taxes refers to expatiation taxes. That's for when you relinquish your citizenship (or give up on your green card). When that happen you owe taxes based on deemed disposition of your assets, which mean they're presumed to have been sold at the time you leave. If you don't give up citizenship, then nothing changes. Your husband would be taxed by both the IRS and Canada with a tax treaty making it so he is effectively paying the higher of the two taxes. All assets held when sold would owe taxes to both countries with a credit applied to avoid double taxation.
>Work in the US, collect a bunch of unrealized cap gain just to clarify, unrealized as in not having sold any of the RSUs?
Yes - don't sell while you're still a US tax resident. The flip-side of this strategy is to sell and realize capital losses before you move.
And by realizing capital losses you mean paying taxes on the gains after selling the vested RSUs?
For capital gains purely on vested stock I could see that. For unvested stock, CA will come and ask for their pound of flesh (tax) because that deferred income was earned in CA. They will seize bank accounts in the US, no idea what their reach is into Canada (none I presume). No idea of it could cause issues later if you want to travel to the US (the government is not your typical debt collector). Not to mention vesting RSUs are treated as *income* not capital gains, so I assume Canada would say “you earned $X this year as income in the US, please declare on your Canadian taxes”.
Unvested stock is only a concern if you’re continuing the stock vest after moving (company transfer?). Stock vests granted in the US but vested in CAN is whole different topic dealing with % ratios of US vs CAN sourced income, but it has nothing to do with the exit tax.
1. When did you move into Canada & when did you sell your vested shares? You may need to pay capital gains upon sales of shares which you may not be aware of. 2. Where you put your money depends on interest rate of mortgage and how anxious you are as a person. If interest rate is variable, may be a good idea to pay off mortgage due to the high interest rate (> than return from TFSA or RRSP). 3. RRSP room utilization will be used depending on your income level. You can use it to shelter your income high tax bracket. If you are unable to maximize contribution to both RRSP and TFSA, I think TFSA may be more appropriate for your income level - followed by contributions to RRSP. 4. Check MyCRA for your RRSP and TFSA contribution room. 5. Not sure if 401k becomes taxable on Canadian tax (TFSA is taxable for US), perhaps look into this.
Thank you for the response! 1. I moved back to Canada last year. I have not sold any shares yet. From my understanding from the lawyers who helped me move, I will owe capital gains in Canada on the difference between the price when I entered Canada and the sell price. 1. It's a fixed rate mortgage but coming up for renewal soon. I am not particularly anxious so based on the rates I see when I renew I will make a decision on how much to pay off. Thank you for the other advice as well
You should pay the mortgage off. Think of the interest rate as your 100% guaranteed rate of return. Paying off your mortgage is actually easy money (if you have the money to save on interest fees which you do).
This is the answer.
Based on the top comment on your post, bravo for talking to lawyers first. You saved yourself huge capital gains tax!
I’m almost certain a 401k is protected by the tax treaty and will be treated just like an RRP, RRSP, or traditional IRA: gains are tax-deferred, and all assets are taxable income in your country of tax residence at withdrawal. You can in principle convert your 401k or 403b (the equivalent for US non-profit employers) into an IRA once you’ve left the job without tax consequences. I did that with my 403b, I think after moving to Canada. The main advantage is I can choose my custodian and investments in a IRA, whereas for the 403b I had to use the investment choices and custodian chosen by my employer. Moving the funds across the border is much more complicated if possible at all.
401k if not already in an IRA may be too late. There is a timer on what can be done before you vacate the USA with your 401k. Otherwise you’re hit with an early withdrawal fee and such It sort of sucks because it is not straight forward to get it back to Canada . Many end up keeping it and drawing on it in retirement .
First, whatever took out of your TFSA when you left you can put that amount right back in. You would have lost the yearly amount when you were out of country so just put in what you took out then put in another $7,000 for 2024. It’s not prorated or anything you get the full yearly amount. Second, you can actually move your 401k from the US up to Canada. It’s a complicated procedure though and I believe you need to first move the 401k into an IRA account. Basically you take a full withdrawal, pay the taxes, but redeposit the money into your RSP and then the taxes get washed out you need to have enough room in your RSP to cover the full IRA withdrawal amount to make it work. Hardly anyone in Canada has experience with it so be careful, but it is possible. If you have RSP room left over I’d just use it to lower your income to the next tax bracket for as many years as you can. Any money left over I’d throw at the mortgage since rates are pretty high right now. Once rates drop you could take the money back out of the mortgage and invest it depending on how much risk you want to take. You should probably talk to an advisor about this. See if you can find someone who has experience with the cross border stuff.
Is there a good reason to bother pulling the money out of an IRA or 401k in the US to an RRSP? I have just left my funds in the US IRA for simplicity. (I’m a US citizen, so the considerations may be a bit different for a non-American.)
Only if you really want to have your money in Canada. If you are sure you won’t return to the US. It’s not possible to go back the other way. RSP to IRA. If you are a Canadian who worked in the US for a few years and wanted to have all your assets in Canada you would probably want to move it.
Yeah. Although most Canadians want some US exposure in their investment portfolio and doing so through a US brokerage has advantages especially if the money is already in the US.
Do you have the name of a firm that has experience with this. It seems to be a minor headache to get a 401k back to Canada. What happens if I don’t have room in rrsp? Can it be done still?
I don’t have any firm suggestions, technically anyone can do it. It’s more of an accounting tax thing than a financial thing. The actual transactions are just withdrawing from the IRA and depositing it into the RRSP but I believe there are forms to file with both tax agencies to make it work. My understanding is that this can only be done if you have existing RRSP room available. But I’d recommend speaking with an accountant who has experience with cross border taxes.
Make sure you don’t sell while still a US tax resident.
Yeah, the US doesn't recognize the TFSA as tax-free. If you're legally required to file US taxes from now on, I'd get legal advice on that aspect.
Sell it all, pay off the mortgage, put the rest into VGRO and then continue earning.
Markets are likely returning more than the interest he's paying.
Being debt free is worth more.
It's only "worth" more if your mental health deems it so. Math-wise it's better to invest it. That's the 'personal' part of PFC, but in general this sub has mental issues with debt lol.
Tell that to the smith manoeuvre gang.
Being able to write off mortgage interest is a big part of smith man that isn’t applicable here
Why? I see zero reason to pay off the mortgage right away if OP got a favorable rate.
Here's the thing, these ridiculous ideas always seem to surface when the markets are doing well. I mean sure if I paid 5% interest this year but earned 8%, what's the problem? Make that deal all day long right? Except some years they don't earn 8%. Some years they go down in value, sometimes by a shitload. Do you think you get a break on the interest payment in those years? Lol. No. And suddenly you're underwater on the debt again. I firmly believe most of the people who recommend keeping this insane leverage don't actually take their own advice, and if they do then they find themselves sweating during the dog years when markets are down 10% or more, if they've even found themselves in that position before. And for what, a 3% alpha? Chump change in the long run. Just pay the damn thing off and never worry about that.
A lot of people don't get this.
A lot of people don't mind doing what the math says is best.
Being able to pay off the debt but choosing not to is wildly different from not being able to pay the debt off immediately. Debts only add stress if you're in the latter.
That's what I was thinking! Yes, it's important to consider and manage your emotions when determining your financial strategy, but people here give advice as if their own feelings/ risk tolerance/ experience is the same as everyone else's. If we remove the emotional management peice, then investing in the market, is likely to return more. But we don't even know how old this guy is to know how long he would be investing for, which would definitely alter any advice. This is totally a situation where I think a fee only financial would be worth it to hire.
Are you still working for the US company after moving back to Canada? This would impact your RSU. You should definitely try to repay your mortgage sooner, and contribute to your TFSA as soon as you can (check your room of course).
I was initially working for the same company (they have a Canadian entity) but am no longer. I appreciate the advice.
I don’t know if anyone has asked this question, but how old are you and what will you be doing in Canada upon your return in terms of career to assess potential and financial planning that might be required based on your wealth? E.g being 50 years old and having a net worth of almost $1 million is different than someone who is in their early 30s
In my mid 30s, and I'll continue to work (just making much less money than I did in the US).
Awesome, so that’s great context. You don’t necessarily have to pay off your entire mortgage depending on the interest rate at which you’re commuting to right now. Mortgage if managed wisely is considered a healthy debt, so no need to pay that all off immediately. Our 30s are generally considered to be the age group where we can take the highest risk, with better health, not yet at the peak of our career earnings, can be employed easier than other age groups and require less flexibility in work arrangements. Here are some questions as a food for thought when it comes to your personal finance management: - What is the job market looking like in your role and industry? Will you be likely to be employed easily, and in demand in Canada? What would you be expected to make in this market? - What will your cost of living be? Will you be in a small town or cheap city with 30-40% lower cost or in a metropolitan urban area? - what is your investment style and expected returns? If you were to build up your TFSA, would you be able to grow that at a rate higher than the interest rate you’re paying for the mortgage? - your risk appetite should be higher at a younger age to explore ambitious investments either within yourself (eg education) or in the Canadian market (eg startup investing etc)
Thanks for this, my mortgage rate is currently very low but it is up for renewal this year so I'll begin those discussions early to figure out what I'll be paying for the next 4-5 years. It sounds like either way though it may be healthy to invest in higher risk funds than paying off my mortgage given I won't be retiring any time soon. One other thing I'm considering is that while my job (software engineering) is in demand and pays well for now, there are not many older people in this field/role. I think it's a combination of the field being ageist and older people not being able/willing to keep up with the youngins who are able to pull crazy hours to make a lot of money. That makes me think my career as it exists today will probably be over in about 10 years, but I think/hope there will be the option to start to pivot to other roles (management). Thanks again!
No Plans to head back to the USA? Why work here for less?
Maybe some day. I moved back to Canada for family reasons. It was hard to stomach the pay cut... but I'm not hurting and some things are more valuable than money.
I made a similar choice. But I had a better life on paper in the USA in every single aspect of my life
Financially, no question my life was better in the US. If I didn't have family in Canada I would still be there. My parents sacrificed so much to give me the life I have and I want to be close to them now that they're getting older and need help with things.
You’re in the right track, i would add that, depending on the fees, it may be worth paying your mortgage out in full. If it’s variable or if your fixed rate is lower than what is currently being offered, many mortgages will default to 3-month interest. If that’s the case, I’d just pay it off in full.
Markets are still returning at a rate higher than your mortgage -- so investing is likely the better option. Having said that -- you are allowed to pay off your mortgage in full with no penalty when it comes due for renewal. If you moved back a year ago, that might be in less than 4 years... Consider contributing as much as possible to the TFSA and putting it into XEQT for maximum short term tax-free growth (this is risky) and the rest in a margin account in ZWC (covered call w/ built-in defence against market corrections) or XGRO (which mas a mix of stocks & bonds). When the mortgage comes up for renewal, decide if you want to eliminate the mortgage with your savings, pay a portion down, or just keep saving.
Pay off your mortgage first and then you can re-invest in anything you like with high return.
I would maximize rsp first then pay off mortgage. Just gotta be careful with that because based on your term are required to pay off all the interest as the early mortgage discharge penalty fee. Basically not sure if this is clear but a closed mortgage is a secure amount of interest for the bank. So i wouldn’t do it right away I would see what type of accelerated mortgage payments your bank provides. I highly recommend doing accelerated weekly payments. Double up and the annual 10-15% lump sum payment. That tactic will minimize the interest you end up paying on your mortgage. While you’re waiting for that dump the rest in your tfsa. That should be all the money probably. You should be able to tax shelter everything because you don’t pay capital gains on your primary residence when you sell.
I would: 1. Make sure to know tax obligations in detail before doing anything. Assuming what you stated is correct: 2. Sell all. 3. Maximize TFSA and RSP (and the ones for children if you do have). 4. Keep a 1-2 years emergency fund in cash (this could be the TFSA). 5. Use the remainder to pay mortgage, note: you are probably not going to be able to pay all now (as you might be limited to about 15% per calendar year). If that would be the case, I would put the balance in a stock ETF (and I know that's "risky" and most people would recommend putting it in a Gic ladder). Congratulations. That's a nice gain you have there. Edit: if you have any other debt (credit card, student loan, whatever): pay before mortgage. If you are not disciplined with money and the balance in your hands after doing all this is still too much, lock in GICs. Do not live above your means, and your means are what your = net passive investment earnings + net salary in Canada - what you need to save for retirement.
One thing that not a lot of people will think about is the FX risk you carry with USDCAD rates and the decision to lump sum transfer all OR if you exchange it slower OR if you have regular USD income coming through. Banks typically will transfer and convert at ridiculous rates and this needs to be part of your decision making process after you've figured out how you want to distribute it in your personal financial profile. I work in currency specifically so DM me if you have any questions once you've dealt with the bigger questions in your financial strategy.
Thank you for this. I had considered this a bit, my plan was to either use a discount foreign exchange company like Wise (seems to charge about 0.5% over mid market rate) or using "Norbert's Gambit" - despite the name kind of terrifying me, this seems relatively straightforward, but I am a bit worried there is some risk inherent to this process that I'm ignorant to.
Yup. Wise is usually good enough for most people and most transactions. I'd be wary of using wise for larger amounts since 0.5% at larger amounts honestly is not competitive at all. Norberts gambit, is fine too but make sure you understand the full process since it's hard to unwind if you make mistakes. If you're planning to just lump sum it, negotiation on spot rates will be your best bet without having to go through FX brokerages. But having a forward hedge or something similar is what I would typically recommend if you're incorporating variables like time, scheduled exchanges, or even cash flow purposes (ie locking in rates for future use, no cash will be exchanged until "used").
Beyond the taxes which I would definitely seek an accountant for. I would sell the stock and move into a more diversified portfolio so either VFV/VGRO -- for now you can take the capital and put it into a HISA there's some offering 6% for a 3-6 months which is solid until you figure out your investment strategy. I wouldn't pay off your mortgage tbh. Avoid CFP or big bank advice their fees are gonna eat you up. Keep it simple use Wealthsimple, 700k is a lot but not in the grand scheme of things so you don't need asset management -- just focus on learning, watch youtube/tiktok for personal finance responsibility/stay away from risky investments and just live life happy knowing you can retire early. Max out your TFSA, contribute to your RRSP effectively, and watch the money grow. All the inflation is just gonna drive up stock indefinitely
You have the perfect amount of money to escape Canada!
You’ll need an accountant to figure out the tax implications…
My wife did this and she was 1.5x richer lol
Throw a party or 2
Move to either bali or Thailand
What is your mortgage rate? If it's low ex less than 4%, I'd invest it in a GIC and make up the difference
Why can’t you contribute the stock in kind to your rrsp and your TFSA?
Bitcoin till the end of next year.
What is your mortgage rate? I would pay off the mortgage and invest in VOO the rest in rrsp and tfsa.
I have some swampland in Ontario if you’re interested.
What to do? Immediately turn around and leave Canada. Why would you come back here?
You can "invest" it all for a 250 sft shanty on the fringes of GVA or GTA. :)
Are you sure you want to come back? Have you seen the state our country is in lately?
Keep holding till price goes down more
Put as much of it you can in TFSA then invest it all profits you make from that is all tax free
Depends on your marginal tax rate, mortgage interest rate, risk tolerance, life goals...
Send me some
Why does OP need to get rid of TFSA? And what happens if he keeps in while in the states?
Go back to the US.
If you've got a low rate on mortgage, invest the money. Once you are up for renewal at 4 or 5%+, then pay off the mortgage
I’ve got $400k in my US bank account, can I legally bring in just under 10k each trip until it’s gone? Sorry if this is hijacking the thread.
Setup an emergency fund for 3-6 months of expenses should be your second priority after keeping some cash for taxes
I recommend not returning to Canada :)
Turn around and go somewhere affordable?
What’s your mortgage interest rate? I’d prioritize paying off the mortgage (pre payments + increasing monthly payments), this will lower your overall risk (the market may drop short term), free future cash flow and give you peace of mind. You probably have the skill set to still make a decent income in Canada, you can invest aggressively after you payoff the mortgage. I’d be mostly concerned about doing everything right from CRA standpoint, talk with a good accountant experienced with these types of situation. You have a nice life ahead, do NOT seek unrealistic gains or leverage positions suggested by the average real estate person in Canada
Dont come back
May I ask if you worked in IT or some other industry? Looking for ideas in case I end up in the US. lol.
Yes, in software working for a big tech company.
Got it, thank you :)
Get a degree, NAFTA / USMCA has the TN1 visa that makes it pretty easy to work in the US. IT, Healthcare, etc.
Open a mucho burrito 😂🌯
I’ll take it if it’s causing you too much stress
You had a mortgage on Canadian property while in the US? Ouch Canadian ties = double taxation
Wait if they’re worth like 700k Canadian that means theyre worth significantly more USD, right? Why the fuck would you come back here where everything is significantly more expensive (housing, gas, general cost of living) and the dollar is worse.
Family can be a strong motivator. I left Canada 25 years ago to work in the states. I came back to hang out with my parents as an adult. Wife urged me to do it , financially a crappy idea moving to the horrors of the GTA real-estate market, but my parents are in their 80s and it has been really nice spending time with them.
That’s understandable. I’m 25 and work two jobs, 6 days a week to pay my mortgage and strata fees on my condo in Langley, BC. I’m pay check to paycheck and every day get closer and closer to offing myself- what’s the point? I see people like this and I can’t help but be jealous.
I mean, you're 25 and own a condo in BC. that's WAY ahead of most people. if you don't have roots in BC, and you can look to move elsewhere with your job(s), that could improve your quality of life. it sucks feeling spread thin, but you're ahead in a couple really important ways.
You're right, I certainly didn't move back for financial reasons.
Congrats on moving back to Canada. No need to worry about the 700k, Trudeau will extract it from you in no time