So you’ve decided to move to Canada.  Welcome!  My family made the move in 2020, and we haven’t regretted it for a moment.

At the same time, in the process of moving, we’ve had a lot to learn. Personal finance in the US and Canada differ in some important ways. I’ll provide an overview of these below. In Part 2, I’ll also outline some things you might want to do before you move and in Part 3 we’ll talk about things to do (and not do) after you move.

I’m writing primarily for US persons (meaning people with US tax reporting requirements, including US citizens and Green Card holders), but much of this will also be relevant to non-US persons who spent time living and working in the US before moving to Canada.  I’m also imagining readers who are fairly savvy financially and who handle much of their financial lives themselves.  If you tend to delegate a lot of your finances, though, I would hope that reading this could be empowering.

There is undoubtedly a role in many of these areas (taxation, estate planning, investing) for professional cross-border expertise.  The line between what you can DIY and where you need expert help is different for everyone, and even though I tend towards DIY, cross-border issues definitely tilt the scale more towards requiring professional guidance.  At the same time, in cross-border personal finance, even experts disagree over the best approaches.  Thus, understanding the primary issues will serve you well even when you decide to outsource.

And if this whole topic makes you want to hide under the covers, engaging with a professional sooner than later is probably a good idea.

Taxation

Unfortunately, if you’re a US person¹again, someone with US tax reporting requirements, like a US citizen or Green Card holder living in Canada, taxes are complicated.  It’s possible to DIY them, but there will definitely be a learning curve.  This is absolutely an area where paying for expertise can be beneficial.  At the same time, if you are paying a professional tax preparer, I strongly encourage you to check their work. So whether you’re a DIYer or you hire someone, here are some of the key tax differences to keep in mind.

Residency-Based vs. Citizenship-Based

Almost every country in the world has residency-based taxation, meaning your tax liability starts when you become a resident and ends when you leave. In the US, on the other hand, taxation is citizenship-based. In other words, if you are a US citizen or Green Card holder, you are considered a US person (and have US tax reporting requirements) wherever you live. Thus, if you’re a US person living in Canada, both the US and Canada will tax your worldwide income.  The Canada-US Tax Treaty helps prevent double taxation, but you still have the obligation to file with both countries.

Welcome to Canada: Deemed Acquisition

The day you become a resident of Canada, Canada deems you to have sold (aka deemed disposition) and immediately re-bought (aka deemed acquisition) most of your worldwide assets.  In other words, your US investment accounts, from Canada’s POV, have a cost basis²the price you paid for an asset, used to determine capital gains or losses equivalent to the fair market value on the day that you move.  Be sure you keep a record of your asset values on that day!

Ultimately, this will likely be to your benefit as it means all gains earned before moving to Canada won’t be taxed by Canada.  This does mean, though, that you’ll need to track the cost basis separately on any holdings that you had before moving to Canada – one set (in USD) for the IRS, another set (in CAD) for the CRA.  There are tools³Adjusted Cost Base.ca is a popular one to help you do this, though, and it isn’t too daunting as long as you’re not a frequent trader.

Departure Tax

Another wrinkle of residency-based taxation is that Canada charges a departure tax.  If you cease being a Canadian tax resident, Canada treats your taxable assets as if you sold them on the day you leave. Your primary residence and recognized retirement accounts would be excluded. Because of the deemed acquisition on the day you moved to Canada, however, you’ll only be responsible for the gains that accrued while you were a Canadian resident.

No “Married Filing Jointly”

Unlike in the US, Canada requires individual income tax returns, even for married couples.  Some benefits (like the Canada Child Benefit) are based on combined family income, but your income tax rate is always determined individually.  This means that you’ll pay more in taxes if you’re married and one person earns a lot more than the other than you would if the income was more equally distributed.

Because of this, the CRA cares about how you split income from joint accounts.  It is in their interest to ensure that people don’t use joint accounts to transfer income from the high-earner to the lower-earner.  In other words, don’t assume you can just split income earned on joint non-registered accounts 50/50.  The CRA requires you to attribute the income based on whoever contributed the funds, so be sure to keep good records of your contributions.

There are also strategies you can employ (particularly in retirement) to more equally split income with your spouse, but those are outside the scope of this overview.

Deadlines

The deadline for individual income taxes in Canada is April 30th.  As an expatriate, your deadline for US taxes will be June 15th.  And, for your first year as a Canadian tax resident you’ll just be filing a partial year return, beginning from the date that you became a tax resident.

Investing

If you’re a confident DIY investor and you’re willing to do some self-study, it is possible to continue managing your own investments in Canada.  I’ll cover some pitfalls to avoid in the “after you move” post, but for now I just want to highlight some of the differences.

Account Types

Account types in the US and Canada are different but they have a lot of similarities. For US persons, it is important to know which ones are recognized by the IRS and which ones are not.

• Non-Registered – These are regular, taxable accounts.  They could be jointly owned or individually owned.  As stated above, unlike in the US, just because an account is jointly owned, that doesn’t mean that the income is split 50/50 in Canada. These types of accounts are fine for US persons to hold, but you may want to hold them in USD to make it easier to avoid PFICs⁴we’ll talk more about these in the “after you move” post.
• RRSPs – These are similar to traditional IRAs or 401(k)s, but without the minimum age limit for penalty-free withdrawals.  Contributions reduce taxable income, growth is tax-deferred, and withdrawals are taxed as income.  Contribution room is 18% of the previous year’s income, up to a maximum.  These are recognized as retirement accounts by the IRS and are thus safe to use as a US person.  Within these accounts, you do not need to worry about PFICs⁵again, more on these later.
• TFSAs – These are similar to Roth IRAs.  Contributions are post-tax, and both growth and withdrawals are tax-free.  Contribution room is based on the number of years lived in Canada after age 18.  Unlike RRSPs, these are NOT recognized by the IRS and are thus more complicated to use as a US citizen or Green Card holder.  You’ll have to report gains on your US tax return, avoid PFICs, and you may also have foreign trust filing requirements. If you keep your investments simple and your cross-border tax preparer’s fees are reasonable, these can still potentially be worthwhile.
• RESPs – Similar to 529s, these are used to save for someone’s education, most often a a child or grandchild.  If you’re a US person, they aren’t generally recommended due to US tax on growth and complex foreign trust reporting requirements.
• FHSA – This is a relatively new type of account aimed at helping people save for their first home.  Like an RESP, this is probably not worth using for a US person.

Note that if you talk to cross-border tax preparers, you may find different stances around things like TFSAs, RESPs, and FHSAs.  Some are adamantly opposed to using them for US persons, while others are willing to make the argument to the IRS that these are, in fact, not foreign trusts.  Unfortunately, this remains a grey area because there hasn’t been clear guidance issued by the IRS.

Banking

Banking in Canada is pretty similar to banking in the US, but there are a couple of differences worth highlighting.  First of all, Canada has a group of banks called the Big 5 (RBC, TD, Scotiabank, BMO and CIBC).  As a newcomer, these banks can be useful because they typically have newcomer packages and will let you open an account (and even get a mortgage) before you move to Canada.

Once you get to Canada, though, I’d encourage you to shop around for your banking needs as some of the newer players (e.g. EQ Bank) often have better interest rates and lower fees than the Big 5.  I would also discourage you from getting investment advice from these banks as they often push high-fee, high-commission products.

Another quirk of the Canadian banking system is the use of Interac.  Interac is a Canadian tool that allows you to transfer money for free to another person’s bank account using just their email or mobile number.  In my experience it works well, but I have heard stories of people sending money to the wrong email or phone number and getting little recourse from the bank.

Estate Planning

In the US, federal estate tax is only an issue for estates that exceed a certain value (currently $12.9 million USD). If the value is below that, beneficiaries receive the assets tax-free, and the cost-basis is stepped up to their fair market value on the day of death.

In Canada, on the other hand, all estates are taxed. There is a deemed disposition on the day of death, meaning that assets are treated as if they’ve been sold and re-bought and capital gains are assessed. The estate pays the tax, and this needs to be done before any assets are distributed to beneficiaries. The executor needs to get a clearance certificate from the CRA to show that all tax obligations have been met, then you can distribute assets from the estate.

Estate planning as a US person in Canada is definitely an area where you’ll want to involve an expert. Even experienced estate planning lawyers can struggle with cross-border issues, so look for someone with that particular expertise — a TEP qualification is a good place to start. And be prepared to spend at least a few thousand dollars on a proper cross-border estate plan. We’ll talk a bit more about some of the specifics in the “before you move” and the “after you move” posts.

Healthcare

In Canada, health insurance is handled at the provincial level, and is provided to all residents. Be sure to register with your province right away to start this process.  Some provinces have a waiting period, and if that’s true of your province you may want to get temporary private health insurance.

Extended health benefits are often offered as a perk through work, and would cover things like prescriptions, vision and dental care.  If you have access through work or another group plan (e.g. a professional organization) it may be worth it, but do the math.  Many prescriptions are significantly cheaper in Canada than in the US, even without extended health insurance.

Here’s a deeper look at the pros and cons of healthcare in the US vs. Canada for those looking for more detail.

In Conclusion

That wraps up some of the key differences between the financial systems of the US and Canada. In the comments, please feel free to ask questions or share you own experience. Is there anything I left out?

Next up: Part 2 – What should you do before you move from the US to Canada?

• 1
  again, someone with US tax reporting requirements, like a US citizen or Green Card holder
• 2
  the price you paid for an asset, used to determine capital gains or losses
• 3
  Adjusted Cost Base.ca is a popular one
• 4
  we’ll talk more about these in the “after you move” post
• 5
  again, more on these later