Retiring to Canada with investments and large pension

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Question

Hi Phil

I got your email from my brother you that you helped when he sold his Victoria rental condo a few years back. He said you were very knowledgeable about cross-border matters and that you could probably help with my questions, so here it is…

My wife and I will be retiring to Canada next year and I’m try to plan for our investments and large pension. We can file jointly in the US so I’m not concerned about our 1040 return, but I just learned that in Canada you don’t have the ability to file joint returns. Which is giving me great pause and concern. See, here is the issue.

All our investments which are significant are in my name. Therefore all our dividends will be taxed in my hands in Canada. I also received a $150,000 University pension on top of that. And my wife only has a small amount of investment income and social security income.

Should I be transferring some of my investments to my wife before we move? I can’t do anything about our pension, but I would guess transferring investments is possible without any current tax consequences?

Regards

XXXXXX

Answer

Hi XXXX

Thanks for the email. I can’t really give out “advice” over email without a proper engagement letter but let me give you some general thoughts on your email below.

You are correct about joint returns in Canada. Unfortunately for us we cannot file jointly with spouses. That being said you will be able to split up to 50% of your US pension with your wife when you enter Canada and become a Canadian tax resident. Under the Canadian split pension rules you’ll be able to split up to 50% of eligible pension income with a spouse. Given her income is low this would result in a big tax savings. Note however that the US pension would still attract a 15% US tax that would be available as a foreign tax credit on your Canadian return.

It does sounds like there would be additional benefits to transferring some investments to your wife in an effort to further equalize and split income between the two of you.

Before you both become a Canadian tax resident you may want to consider gifting some of your investment assets to your wife so that later income from the investments can be split between the two of you. Although you’ll need to file a 709 gift tax return for any gifts to a spouse you won’t have to pay any gift tax on the transfer. As mentioned above however I would suggest this transfer take place before moving to Canada as Canada has different rules for gifting investment assets to spouses.

Please note that the comments above are only general suggestions and a proper cross-border tax consultation should be scheduled to properly review all your options.

Hope that helps.

Regards

Phil

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