Moving to Canada from Texas with ROTH IRA, Investments and Living Trust

Moving to Canada from Texas with ROTH IRA, Investments and Living Trust

Key Points

• Moving to Canada from Texas with a Roth IRA requires careful planning to avoid Canadian tax on future distributions.
• Roth IRA investments may continue to grow tax-free in Canada, but proper reporting to the CRA is essential.
• A U.S. living trust may face different tax treatment in Canada, necessitating adjustments to the estate plan.
• Cross-border tax treaties can help manage potential double taxation, but detailed compliance is crucial.
• Consulting with a cross-border financial advisor is key to navigating the complexities of Roth IRAs, living trusts, and investments after relocating to Canada.

If you need help in reviewing your cross-border tax or investment situation, please feel free to reach out to us here. We look forward to speaking to you soon.

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Question

Hi Phil, I thought it might be more helpful to provide you with some more detail about my situation so that you can either provide me with help or guide me to someone who can.

I am a 44 year old woman and both a US and Canadian citizen who has lived in Houston, TX for the past 22 years. I am now thinking of moving back to Canada in the next 30-60 days and would like some help with tax, asset, and investment questions and what my options are. I am also expecting a sizable gift from my father who lives in Canada and am not sure whether to invest it here in the US or in Canada. I will be finding employment in Canada and therefore be paying Canadian income tax. I am planning to live in Canada for the foreseeable future but may return to live in the US in the next 5-10 years if my children reside there.

My husband and I are currently amicably separated and we do not have a date for divorce yet. He is planning to live in our primary residence for the next year or so. We also have a second rental property that we are deciding whether to see or rent out.

Here are my specific questions:

1. I have ROTH IRA investments accounts with TD Ameritrade here in the US. I know that I can keep them here but when I choose to take any money out, will I be taxed on those gains in Canada (I know I will not be taxed here in the US)?
2. I am in the process of drawing up a will, living revocable trust and durable POA; will I need to draw up those documents here in the US or in Canada or have 2 sets of identical documents in each country?
3. I am planning to receive a gift of $475,000 CDN from from father who is a resident and citizen of Canada; my question is whether I should open up a taxable brokerage account here in the US and deposit the money before I leave (because of more favorable US capital gains tax laws) or should I open it up in a taxable account in Canada (I am hoping to live in Canada for the foreseeable future but may return to live in Canada in the next 5-10 years if my children are here)? Does it make a difference where I deposit this gift based on tax consequences for each country (this gift would be used as yearly income that I would withdraw for retirement purposes in another 10 years)?
4. I have over $100,000 US in cash in a US non-interest bearing bank account; would it be best to leave the funds here or move them over to Canada? Is there any advs/disavs to doing either?
5. Will the eventual sale of my principal residence incur any tax consequences for me in Canada? Is there a time limit where this must be sold by? What about my rental property; can my husband just send/gift me my share of the proceeds?
6. If my husband is still living in the US and has an address here (that I can use), does that help me in any way) ie. can I still use that address to keep my brokerage accounts open etc)?
7. If I leave my brokerage accounts open here in the US, will I still be able to access them, trade, etc? If so, will I have to file an US tax return based on any gains, a Canadian tax return (even though the gain was in the US) or a return in both countries?
8. Finally, as a future resident of Canada who will be working and paying taxes there, is there a situation where I will still need to be filing a US return if I am not earning any income in the US (besides the selling of investments resulting in a capital gain)?

Answer

Hi XXXXX

Thanks for the email. I’ll do my best to provide you with some general insights, however you have lots going on there that may required a longer consult.

1. Yes, the ROTH IRA will work well for both Canadian and US purposes however you’ll need to ensure you properly file Canadian treaty elections for the ROTH IRA after you move to Canada to ensure that the ROTH is tax free going forward in both Canada and the. You can read more about ROTH IRAs in Canada here: http://philhogan.com/roth-ira/
2. If you plan on moving to Canada permanently it may not be advisable to form a new trust as the trust will be a taxable trust and require Canadian filings. This will required a more in-depth conversation.
3. It won’t matter where the money is deposited, but if you plan is to stay in Canada it’s likely more efficient to consolidate everything into a Canadian brokerage account.
4. As mentioned above, I always advise individuals to move everything up to Canada to ensure all accounts can be properly planned together. Also, any US investment accounts left in the US will result in significant T1135 reporting requirements.
5. Your assets are revalued when you move to Canada which means that you won’t be liable for tax on accrued gains before you moved to Canada. The principal residence is a little different as you’ll need to have lived in the property 2 out of the last 5 years to ensure you maintain your principal residence exception. You’ll also want to ensure as many of the gift/transfers from your husband happen before you move to Canada (planning will be required).
6. When you become a Canadian tax resident you won’t be able to maintain investment accounts in the US and I would strongly advise not to use a US address to circumvent these rules. Once again, I would move the assets up to Canada with an investment advisor that has both Canadian and US licenses.
7. See above
8. Yes, if you’re a US citizen you’ll be required to continue filing US tax returns
   1. You can read more about filing US tax return in Canada here: http://philhogan.com/how-to-file-us-tax-returns-in-canada/
   2. And also about the first year filings here: https://philhogan.com/what-tax-filings-should-you-expect-your-first-year-in-canada/

Hope that helps and please let me know if you would like to setup a cross-border tax and investment consultation.

Cheers

Phil