Moving out of Canada – Tax issues

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Question

Hello Phil

Thanks for your quick reply. Just to clarify, my intention is to fully retire by 2023 (as in nothing but pension income) and live in the home that my husband and I purchased in Washington   IF  everything goes according to plan and I am awarded PR status. Our original plan was for my husband to live here while I continued working until I was 70 and then we would find a nice affordable home out west and live out the rest of our lives in Canada – however, COVID changed all that and Canadian immigration rejected my application to sponsor my husband because he dared to leave Canada, after living here with me for one full year, to get vaccinated in the US, attend to his home there which he was renting out, and to get some medical procedures done – none of which he could have done in Canada. Apparently a global pandemic does not qualify as extenuating circumstances!

List of questions:

  1. What involvement does the CRA or IRS have with my co-ownership of a home in the US, tax-wise?
  2. I understand that I should keep filing my Canadian tax return even if I have no Canadian income, is that correct?
  3. I will be finishing off in 2022 with some self-employment and then by 2023 will only have my US Soc Sec as well as CPP and OAP from Canada as income – who taxes this? Or does it depend on my residency status come tax time?
  4. When I start receiving my CPP in September of 2022, I’ve been told that I need to then notify US Soc Sec because there’s a reduction in that amount or a split or something….please clarify
  5. Does CRA and IRS  need to know my US address while I’m there for the first 6 months, – basically similar to a snowbird who owns a home in Palm Springs and lives there for 6 months of the year –  technically I’m a visitor because I won’t have my PR yet? If the PR magically gets approved BEFORE the 6 months is up then of course I will notify of US address.

(I’m not trying to subvert any laws, in fact I want to do this all above board but I’m not a wealthy person and I don’t want to be surprised by taxes, fees, penalties etc. that I was unaware of) I want to maintain a BC address in case the PR is denied for any reason. This address is legitimate as it’s my son’s home and it is where I will stay when I visit Canada and it’s where I will live IF I can’t live in the US for any reason or if/when I return to live in Canada)

  1. I’ve been told by my financial advisor that if I live there for more than 6 months I’m automatically considered a non-resident of BC – is that your understanding? And, if so, should  I return just before the 6 months and then how long can I stay before legitimately going back – either as a visitor or a bonafide PR?
  2. When do I have to take out my RRSP – is it at age 70? – can I keep it safely in Canada? When I take it out, is it considered by the US to be income? And by Canada? Does it get claimed on both?
  3. Once I become a PR of the USA am I required to file a tax return in both countries? I assume so.
  4. I have a TFSA account which I’m going to close – any recommendations about this?
  5. Should I call the CRA and let them know, up front, all my plans or is this “tipping my hand”? Again, not trying to be duplicitous but I don’t want any fines or financial surprises. I lived in the US for ten years from 2004-2014 and lost my residency status in Canada and had to reinvent myself when I returned (I had PR status there which I rescinded when I found out they were taxing my Canadian income when I returned). so this is where my wariness comes from – maybe a hint of paranoia!! – In the short time that I have been back in Canada – arriving back here with only $7,000 to my name – I have managed, on my own to secure good jobs – I only have a meagre $60,000 in savings/investments (including my RRSP) pay all my bills and have no debt. We will have no mortgage on our US home as my husband was able to pay cash due to the sale of his home in Blaine, Washington. Does it matter(tax wise) that I put no money into the home? I would suspect not.

Anyway, thank you for listening. I am 63 years old, in good health, still active and vibrant and have been gainfully employed since 1978 first as a teacher, now as a counsellor, I’ve always paid my taxes, and my bills and have no criminal involvements.

Answer

I’ll do my best to provide some general insights below to help, however if you need some more detailed planning we’ll need to schedule a proper consultation (the information below should not be taken as advice). It’s not terribly clear from the information below, however I gather that you are a Canadian and your husband is American. You’re both currently living in Canada and he has was not able to get his Canadian PR:

  1. If you’re still filing Canadian returns after you move to the US then you’ll need to report any income including capital gains on any future property sales. That being said, if your intention is to leave Canada permanently you’ll likely want to file a Canadian exit return so you won’t need to file Canadian tax returns going forward. This requires planning.
  2. You’ll only want to continue filing Canadian income tax returns if you’re a Canadian tax resident. If you’re leaving Canada you’ll likely be deemed to be a non-resident of Canada for income tax purposes. That being said, leaving Canada and severing your ties will result in a deemed disposition of your worldwide assets from a Canadian perspective.
  3. Yes, it depends on your residency at the time of earning and receiving the income. Social security, CPP, OAP and business income will be taxed in the country where you reside (in most cases)
  4. Yes, you’ll want to advise the social security department of the CPP that you’re earning as it could reduce the amount of social security that you are entitled to.
  5. CRA won’t necessarily need to know of an address change until you file your next tax return. However you’ll want to properly plan for any change in tax residency.
  6. That’s not necessarily true. If you’re in the US for more than 6 months you’ll be considered an automatic tax resident of the US. That doesn’t necessarily mean you’re a non-resident of Canada, but that could be the case.
  7. Your RRSP will automatically convert to a RRIF when you turn 71. Before that date if you don’t withdraw money from the RRSP you won’t pay any US or Canadian tax. Once it converts to a RRIF and if you are not a tax resident of Canada at that time Canada will withhold 15% tax and the amounts will be taxable on the US side. You will also receive a foreign tax credit in the US for the 15% of Canadian taxes paid. There is an opportunity to recover some “cost basis” tax-free from the RRIF for US purposes, however you may not need to worry about this if they are already withholding 15% Canadian tax.
  8. Once you become a US tax resident (which may be before getting your Green Card) you’ll need to start filing US 1040 returns. If you’ve already filed a Canadian exit return that will be your final Canadian filling. Unless you have other Canadian source income like real estate income.
  9. If you’re moving to the US it’s likely easiest to close down the TFSA.
  10. It couldn’t hurt to call CRA, however you likely won’t find anyone on the front phone lines that have experience with cross-border tax. Also, in my experience talking to clients CRA has given very bad advice to clients over the general phone line. They often give incorrect answers instead of simply saying “I don’t know”.

As you can appreciate there’s really no “black and white” answer to any of the questions above as they heavily depend on your particular situation and intentions.

Hope that helps a little and let me know if you need to setup a further cross-border tax consultation.

Cheers

Phil

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