Moving to the U.S.?

Canadians share a lot with our neighbours to the south, including our long and friendly shared border, similar cultures and economies, and some well-known natural wonders. We also have key differences. The United States has baseball to our hockey, apple pie to our beaver tails, and an abundance of warm climates relative to ours. And, if you’re a Canadian moving to the U.S., there are the truly serious differences to consider, beginning with taxes.

While the Canada-U.S. Tax Treaty helps mitigate most risks of double taxation, certain situations can subject you to taxes on both sides of the border. In my last post, I wrote about Robert, who has a vacation home in Florida where he regularly spends a lot of time, and described the calculations that determine whether he may be considered a U.S. resident or not. Suffice it to say that some years he spends time in the U.S. without being considered a U.S. resident, and other years he stays long enough to trigger U.S. tax residency.

As he approaches retirement, Robert, who is especially fond of Florida’s climate, is giving serious thought to moving permanently to the Sunshine State. Naturally, only he can decide whether to make this move, but in the meantime, here’s an overview of the sorts of issues I’ve been counselling him to consider.

No longer residing in Canada doesn’t necessarily mean Robert will stop being a tax resident of Canada. Under the Canadian income tax system, income tax obligations are based on residency status. If Robert is considered a Canadian tax resident, he’ll have to pay tax on his worldwide income. But if he is considered a non-resident, he’ll pay taxes on Canadian income only.

The most important factors the CRA considers are “significant residential ties” to Canada, namely if Robert still has a home, spouse and/or dependents in the country. Secondary residential ties that may be relevant include personal property like cars and furniture, social ties such as belonging to a religious organization, and economic ties, such as maintaining Canadian bank accounts.

Generally, Robert will be considered an emigrant for income tax purposes if he leaves Canada, establishes a permanent home in the U.S. and severs his residential ties with Canada. Even if some ties to Canada are maintained, Robert can be considered a non-resident of Canada if he can establish that he has stronger ties in the U.S. under the Canada-U.S. Income Tax Treaty (the Treaty) residency “tiebreaker” rules. This determination depends on factors such as the location of his permanent home and centre of vital interests.

If Robert does leave Canada as an emigrant, he’ll be considered to have sold certain assets, such as shares, paintings and collections—even if he hasn’t actually sold them—at their fair market value and reacquired them for the same amount. This “deemed disposition” would subject him to a departure (or capital gains) tax on his assets prior to his move to the U.S. (There are some exceptions, including Canadian real property, pension plans and certain trust interests.)

Robert will also have to think about the types of business investments he has in Canada. For example, if he holds more than 50 per cent of the shares in a corporation and is moving management and control to the U.S., or if he has a partnership interest in Canada, there could be significant tax implications. I can’t get into the specifics of Robert’s situation, but to manage the overall tax burden, some businesses wind up or restructuring of certain holdings and assets may be more beneficial prior to emigration.

It’s also important that Robert think about U.S. estate tax. Upon death, non-U.S. citizens and residents are subject to U.S. estate tax on the fair market value [PDF 414 KB] of certain U.S. assets (known as “U.S. situs assets”). These include personal property, cars, boats, shares of public and private U.S. corporations, and U.S. retirement plans. However, U.S. citizens and residents (i.e., those who are domiciled in the U.S.) are subject to U.S. estate tax on their death on their worldwide estate.

As a Canadian resident and non-U.S. citizen, Robert would be subject to U.S. estate tax on U.S. assets only. However, if Robert moves to the U.S. permanently, he is likely to be considered a U.S. resident for estate tax purposes. That means he would be subject to U.S. estate tax on his worldwide estate.

If Robert is a non-US citizen or resident on death and the value of his U.S. situs assets is US$60,000 or less upon death, he would not be liable for U.S. estate tax. If the value of his entire estate, including worldwide assets, is US$13.61 million or less when Robert dies, he will also not be liable for U.S. estate tax owing to an additional tax credit available under the Treaty.

If Robert were a U.S. resident for estate tax purposes upon his death, he may utilize the applicable estate tax exemption amount (currently US$13.61 million as previously noted) to reduce his U.S. estate tax liability.

I’ve made sure Robert is aware of a couple of other things, too:

1. Estate tax rates range from 18 per cent to 40 per cent
2. The estate tax exemption amount changes annually, so he’s wise to periodically review his exposure to U.S. estate tax and make any needed adjustments
3. The estate tax exclusion on assets will revert to US$5 million (adjusted for inflation) beginning Jan. 1, 2026, unless legislative changes are made

While Canadians and Americans are close in many ways, when it comes to cross-border taxes, it’s complicated. Ultimately, it’s incumbent on Robert (and any Canadian considering a similar move) to take the time to evaluate his financial affairs and explore resources that can offer guidance, whether that’s information available from the CRA, IRS and elsewhere, or by reaching out to me or another member of the KPMG Family Office team. When you proactively manage your tax matters, you can confidently embrace whatever change is ahead and focus on enjoying your life—whether you plan to spend it above or below the 49th parallel.