Each year I help over 500 clients file their Canadian and US tax returns as well as plan for both their Canadian and US investment accounts. I also regularly help new US clients plan for their move to Canada.
My wife and I will be moving from Texas to Calgary early in 2021. We’re trying to do as much research on the move as possible. To be honest, the complexities of the tax systems between both Canada and the US is making our heads spin.
Although we’ll be working for a few years after we move to Canada will be the retired relatively quickly. We don’t have much in the way of investments in Canada other than a small RRSP and a bank account.
Most of our investments are in the US which include cash, real estate, IRAs, small 401k and a regular Fidelity investment account.
I was going some research on specific forms that we would need to complete for our tax returns and stumbled across the CRA form T1135. I have a few questions about this form.
- Do we really need to complete this form?
- Can we use any of the simplified methods for reporting our US investments?
- Do I need to report our IRA and 401k accounts on the T1135
Should I be thinking about moving our US investments to Canada?
Thanks for any help you can provide.
Thanks for the email. Let me see if I can provide some quick answers for you in order to help. Considering the complexity of these issues we’ll want to fully flush out your situation over the phone. Please give me a call at 250-661-9417 so we can properly review your cross border tax and investment situation.
In most cases, if you’re foreign (non-Canadian) investments have a cost basis that exceeds $100,000 you’ll be required to complete form T1135. Some investment accounts will be excluded from this requirement (more on this below).
Your cost basis for your accounts will not actually be the historical cost basis of the investment accounts, but rather the fair market value of the investments when you entered Canada. For Canadian tax purposes Canada allows you to adjust your historical cost basis (when you move to Canada) up to FMV so that you will not be taxed on accrued gains that you have yet to realize before moving to Canada.
In general terms, accounts such as US IRAs, ROTH IRAs and 401k accounts will not need to be reported on form T1135.
CRA also allows for a first year exemption from filing form T1135 assuming you have not been a tax resident of Canada in the past. That being said, I tend to advise clients to file the form the first year of entry to ensure it’s not missed in subsequent years.
CRA allows for a simplified method of reporting for those with accounts less than $250,000. For those over these cost amounts a more detailed reporting is required.
For taxpayers with investments with a cost exceeding $250,000 will be required to report individual investments on the form. For investments that are held in a Canadian account however the requirements are much less onerous.
In your case the Fidelity accounts would not qualify for this simplified filing requirement unless the FMV of your account was under $250,000. If not, you’ll need to report the following for each security in your portfolio:
- Name of the stock
- Country code
- Maximum cost in the year
- Cost at year end
- Gross income earned on the investment
- Any gain or loss realized on the individual investment
As you can imagine the work required to prepare this level of detail is significant. In many cases the cost to prepare the T1135 exceeds the cost to prepare the actual tax returns.
For this reason we tend to advise clients move their US investments up to Canada in a Canadian investment account. Not only is this much more efficient for clients it allows for a much simpler method of T1135 filings.
I hope that helped and please don’t hesitate to call me at 250-661-9417 if you want to chat in more detail.