Crossborder Personal Finance

Simple advice for complex situations

  • A Sunbird’s Guide to Canada: Key Financial Tips for US Citizens

    A Sunbird’s Guide to Canada: Key Financial Tips for US Citizens

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    by

    Dave
    in , , ,

    This article is for the “sunbird” (aka a “reverse snow bird”)—a US citizen owning property in Canada and spending several months here each year, but whose primary home and tax residency remain in the United States. If this describes you, you’re in a unique financial situation that requires careful planning.

    My goal here is to outline the key financial issues for US citizens who spend significant time in Canada but remain US tax residents.  Like all aspects of cross-border personal finance, there are lots of nuances and exceptions here, so please take the time to read through the official info from the CRA (and reach out to experts) to better understand your specific situation.  I hope that this article will be a helpful start, and if you have any questions please feel free to post them in the comments below.

    Determining Tax Residency

    Generally speaking, if you spend more than 183 days in a calendar year in Canada, you will be a “deemed resident” of Canada and will have to file income taxes for your worldwide income for that year.

    If you spend less than half of the year in Canada, you may still be considered a “factual resident” of Canada (and have to file income tax for your worldwide income) if you have significant residential ties with Canada. This includes things like owning a home in Canada, having a spouse in Canada, and having dependents in Canada.  Secondary ties include things like cars, financial accounts, health insurance and official Canadian documents.

    Thus, even if you own a home in Canada, so long as you spend less than 183 days here and can demonstrate significant ties to the US (e.g. owning a home, having financial accounts, family ties, etc.), you would not be considered a tax resident of Canada.  For Canada’s official documentation on determining your residency status, please visit the link below.

    More info: Determining residency status

    Tax Obligations for Non-Residents

    If you are a non-resident of Canada for tax purposes, you still are responsible for paying tax on Canadian-sourced income (just not worldwide income).  There are two types of tax that non-residents are typically subject to in Canada.

    Your US filing Obligation

    To make things very clear – if you’re a US citizen spending time in Canada, any income you earn in Canada (e.g. interest on a GIC or capital gains on a house sale) needs to be included in your US income tax return.  If you paid any taxes in Canada, you would use Foreign Tax Credits to offset your US taxes by the amount paid in Canada, avoiding double taxation.

    Canadian Withholding Tax (Part XIII Tax)

    Part XIII Tax is a withholding tax that is deducted from certain types of passive income, including dividends, OAS, CPP, annuities and rent.  Interestingly, it does not apply to interest (e.g. from a GIC) as long as the payer is unrelated to you.  The usual Part XIII tax rate is 25%, but this is reduced by the US and Canada Tax Treaty.  If you find yourself in a situation where your withholding tax isn’t being properly reduced, you should file Form NR301.

    Income and Capital Gains Tax (Part I Tax)

    Part I Tax is paid if you conduct business in Canada or sell taxable Canadian property.  A common trigger for this for many sunbirds is selling a house.  You’d report this by submitting form T2062A within 10 days of the sale, and you are required to file Canadian income taxes that year.  Typically the way this process works is that the buyer will withhold a portion of the sale price (currently 25%) until the seller gets a clearance certificate from the CRA.

    More info:

    Underused Housing Tax (UHT)

    The Underused Housing Tax is an annual 1% tax on the property’s value that non-resident property owners must pay each year.  There are exemptions, but even if you are exempt from the tax it is important to file the annual return to avoid penalties.  Failure to file your UHT form could also delay getting a clearance certificate in the event of a sale.

    More info: Underused Housing Tax

    Investing in Equities as a Non-Resident

    While Canadian brokerages will generally not open an investment account for a non-resident without a SIN, it’s not a path you’d likely want to take anyway.  I can’t really think of a good reason to, and it would definitely make things more complicated.

    If you’re looking to mitigate currency risk, holding some hedged ETFs or Canadian dollar GICs might be a good approach.  You could also look for a US brokerage (like Schwab or Interactive Brokers) where you could invest directly in Canadian stocks.  If you go that route, be sure to avoid investing in Canadian domiciled ETFs or mutual funds, as those are considered Passive Foreign Investment Corporations (PFICs) by the IRS and have very complex and expensive filing requirements.

    If, on the other hand, your primary goal is getting invested in the Canadian equity market, a US-based ETF like JP Morgan’s BBCA might be the way to go.

    Estate Planning as a Non-Resident

    Your US estate plan would likely be valid in Canada, but relying solely on that could be slow, expensive and complicated.  One big reason is that it would have to go through ancillary probate, which means it would be probated in Canada after your US probate is finished.  Thus, the process in Canada won’t start until the US process is finished.  In addition, some provinces require a non-resident (e.g. a US-resident) executor to post a bond.

    A potential solution would be to get a Canadian “Expat” will.  This would be a separate will, drafted for the province that you primarily stay in, that applies specifically to your Canadian assets.  Importantly, this will would be drafted in such a way that it would not revoke your US state plan, but work in conjunction with it.  In this Canadian will, you could potentially have a Canadian executor, or include language waiving the bond requirement for a non-resident executor (although the ultimate decision is the court’s).  A lawyer versed in cross-border estate planning could draft this, and they are even available via LegalWills.ca.

    Powers of Attorney

    Similarly, it would be a good idea to get health and financial Powers of Attorney documents that are drafted for Canada.  Your US ones might be recognized, but there could be delays or complexities in applying them.  In addition, this would give you the option of having a different attorney on both sides of the border.

    Owning a Car as a Non-Resident

    You don’t need to be a resident of Canada to own a car, but there are a couple of things you can do to make it easier and less expensive.  Before coming to Canada, it would be a good idea to get a copy of your driving record (aka abstract) from your home state’s DMV, as a good driving history can help lower your insurance premiums.  Similarly, it would be helpful to get a letter from your US insurance provider detailing your claims history.

    One wrinkle is that some provinces require that you get a local driver’s license and registration after some period of time.  For example, in Nova Scotia, you’re required to get those after driving in the province for 90 days.  If you’re routinely spending 4 or 5 months visiting the province each year, this would mean exchanging your US license for a Canadian one (and back again) each year.  If you don’t want to do that, get written confirmation from your Canadian insurance provider that they will continue to cover you while you are driving on a US license beyond the 90-day provincial limit.  Otherwise, it’s possible that they would try to deny a claim if you had an accident after the 90-day limit.

    Banking and Credit Cards for Non-Residents

    Opening a Canadian bank account as a non-resident is quite manageable. The major Canadian banks (TD, RBC, BMO, etc.) are experienced with this and are a good place to start, especially those with cross-border services. Once you have a Canadian address, you can also explore high-interest savings accounts from online-only banks like EQ Bank.

    Getting a Canadian credit card can be more challenging due to a lack of Canadian credit history, but it is possible. Your mortgage, if you have one, will help. As with banking, the cross-border banks are a great starting point. If you’re still having trouble, you may need to begin with a secured or prepaid card to build your Canadian credit file.

    And for tips on exchanging currency, please see this post.  It wasn’t written with sunbirds in mind, but the advice will generally apply.

    Conclusion

    Being a sunbird (or reverse snowbird) can offer the best of both worlds but, as we’ve seen, it comes with a unique set of financial responsibilities. The key to a stress-free cross-border lifestyle is proactive planning. By understanding your tax residency, managing your non-resident tax obligations correctly, and setting up your estate and banking thoughtfully, you can avoid common pitfalls. That way, you’ll be able to enjoy your time in Canada without worrying about your finances. If you have any questions about your own particular sunbird situation, please feel free to ask in the comments.

  • Escaping the Optimization Trap

    Escaping the Optimization Trap

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    by

    Dave
    in , , , , ,

    In the world of personal finance, it’s easy to get lost in the weeds of optimization. We tweak withdrawal strategies to reduce our 40-year failure rate by 1%. We passionately debate the merits of a market-weighted portfolio versus a factor-based one. We scrutinize MERs, ready to switch ETFs for a .02% advantage. We post our budgets on internet forums, asking strangers how to shave a few dollars off our monthly spending.

    This culture of comparison can make you feel like you’re never doing enough. Insidiously, it feels rational—as if we’re just trying to make the “best” objective decision. In reality, though, this obsessive optimization is a way to give ourselves an illusion of control over an uncertain future.

    Industry research consistently proves this out. Studies from firms like Vanguard and Morningstar find that the single biggest driver of long-term investor success isn’t picking the perfect asset allocation, but managing behavior. In other words, the most valuable thing we can do is stay invested when markets are down and avoid chasing returns when they’re up. Once you have a diversified, low-cost portfolio that you rebalance periodically, further tweaking offers greatly diminishing returns.

    Despite knowing this, I’ll confess to having spent countless hours going down optimization rabbit holes, looking for potential advantages. My wife, however, has a very different orientation to money, and merging our finances forced me to re-examine my assumptions. Seeing things from her perspective helped me realize that my way wasn’t the only way and, more importantly, that it wasn’t necessarily the best way.

    From Satisficing to Holistic Optimization

    My wife introduced me to the concept of satisficing. I’m not sure how much this term has caught on (my spell-check still flags it), but it simply means making a decision once you find a “good enough” solution rather than endlessly searching for the “perfect” one.

    To be honest, when I first heard about satisficing I thought it was lazy. Why satisfice when you could optimize? Over the years, though, I’ve come to see that I was wrong about this. Optimization always comes at a cost, typically some combination of time and effort. Plus, the optimizing mind is usually quite narrow in focus. If I’m laser-focused on maximizing my savings, I’m likely making sub-optimal choices in other areas of my life, like my health or relationships. Most importantly, obsessively optimizing in a particular area doesn’t make me happier, even if the end result is a technically “good” decision. I find that my drive to optimize is often driven by a desire for control, by a belief that if I get it right, future success will be guaranteed.  Of course, there are no future guarantees, and imagining that I have control over future outcomes is simply setting myself up for disappointment.

    To be clear, I’m not suggesting we should avoid optimization entirely; it’s about finding balance. I like the phrase “holistic optimization” – looking for strategies where improving one area of your life naturally improves others.

    For me, biking is a perfect example. I’ve been a bike commuter for years, which has allowed our family to primarily be a one-car household. This creates synergy: biking is cheaper, great for my physical and mental health, fun, and better for the environment. This is the kind of optimization that truly adds value to my life.

    To be clear, this isn’t an argument for everyone to start biking. You might find it stressful or impractical depending on your health, climate, or geography. My point is to look for optimization wins that are synergistic. As you optimize your finances, consider the holistic impact of any strategy—including the cost of your own time and energy—on your health, your relationships, and your overall well-being. Holistic optimization in personal finance means favoring strategies that bring benefit in multiple areas, strategies like simplicity and frugality.

    Finding “Good Enough”: Applying the 80/20 Rule to Your Finances

    So, if we’re looking to avoid obsessive optimization, how do we know when enough is enough?

    There isn’t one right answer. The optimal level of optimization depends on your personality, your expertise, and your interest in the subject. If you enjoy diving into the details of a particular financial topic, optimizing further might be a rewarding use of your time. If you don’t, though, aiming for a “good enough” solution sooner than later is the wiser path.

    Optimization almost always follows a pattern of diminishing returns. I’m a big believer in the Pareto Principle (aka the 80/20 rule). This principle states that, in many areas, 80% of the results come from just 20% of the effort. Of course, the 80/20 split is just an approximation, but I still find it a useful heuristic. Applied to personal finance, it means we can achieve roughly 80% of the potential benefits with just 20% of the optimization effort. Securing that final 20% often requires the remaining 80% of the work—a grueling exercise in chasing marginal gains.

    This idea first clicked for me during a bout of middle-school perfectionism. I was sitting in my room on a beautiful spring day, hand cramping as I slowly re-copied homework pages to perfect my cursive handwriting, a skill I loathed and never really mastered. It suddenly hit me: if I was okay with an A- or a B+ instead of a perfect 100%, I could stop and go play outside. Once I saw that, I never looked back. Throughout school, I was consistently an honor roll student, but I worked far less than my peers who were competing for valedictorian.

    For most of us, I think the goal in financial planning should be the same: concentrate your optimization on the 20% of things that will give you 80% of your results. This approach maximizes your “bang for your buck” and helps you avoid the analysis paralysis that comes from getting bogged down in complex, low-impact details.

    Holistic Cross-Border Finance Optimization

    So, how do we apply this 80/20 rule to the unique complexities faced by a US person moving to Canada? Here’s a breakdown of where to focus your “20% effort” for the “80% reward.” Remember that these are my personal suggestions, and that the specific balance will vary from person to person. What feels worthwhile (and even fun) to one person might be a grueling chore for another. Still, my hope is that this can serve as a valuable starting point as you prioritize where to spend your optimization energy.

    The Essentials: Getting 80% of the Results with 20% of the Effort

    These are the foundational actions that provide the most significant financial benefit and protection. Getting these right is the core of a successful cross-border plan.

    Investing

    • Determine Your Asset Allocation. Choose a simple, diversified portfolio of low-cost ETFs that is primarily, or even entirely, allocated to equities. Review it once or twice a year, and rebalance if it has drifted more than 5% from your target.
    • Get Invested and Stay Invested. Time in the market is far more important than timing the market. The key thing is to get your money invested and then commit to staying the course through market ups and downs. Doing just these two things will put you ahead of most investors.
    • Avoid PFICs in Your Taxable Accounts. Passive Foreign Investment Companies (PFICs) create a significant U.S. tax and reporting headache. To avoid this, hold your non-registered (aka taxable) accounts in USD and invest primarily in US-domiciled ETFs, individual Canadian stocks, or GICs. Avoid holding Canadian-domiciled mutual funds or ETFs outside of your RRSP.
    • Preserve Your Roth IRA’s Tax-Free Status. The Canada-U.S. Tax Treaty allows your Roth IRA to maintain its tax-free growth in Canada, but only if you follow two critical steps: file a one-time election with the CRA after you move, and make no further contributions. And if you haven’t moved to Canada yet, consider rolling over other eligible assets into your Roth IRA to take full advantage of this.
    • Use Your RRSP for Tax Deferral. An RRSP is an excellent tool for tax-deferred growth, as it’s recognized by both the U.S. and Canada. It is most beneficial if you anticipate being in a lower tax bracket in retirement than you are during your contribution years and you can use a spousal RRSP to help balance income.

     Taxes

    • File Your Tax Returns in Both Countries. As a US person living in Canada, you have a dual filing requirement. This is non-negotiable. Plan to file a U.S. Form 1040 and a Canadian T1 return every year. And remember that you may also need to file a final (or ongoing) state return tax depending on the rules of the state you moved from.
    • Prevent Double Taxation. The Canada-US Tax Treaty is your primary tool for avoiding being taxed twice on the same income. This is most often achieved by using the Foreign Tax Credit (FTC), which allows you to use taxes paid to Canada as a dollar-for-dollar credit against your US tax liability. The other option is the Foreign Earned Income Exclusion (FEIE), which allows you to exclude a certain amount of earned income ($126,500 USD in 2024) of earned income from your US tax liability. Use whichever is best for your situation.
    • Report Your Foreign Assets. In addition to your basic tax return, Canada and the US both have specific reporting requirements for assets held abroad.  Be sure to file an FBAR, Form 8938 and/or T1135 as needed to ensure you remain in compliance on both sides of the border. These are primarily informational returns, but the penalties for failing to file can be severe.

    Estate Planning

    • Review Your Beneficiary Designations. Assets like RRSPs, IRAs, 401(k)s, and life insurance policies pass directly to your named beneficiaries outside of your will. Ensure that these designations are up-to-date.
    • Create Coordinated Wills. At a minimum, you’ll need a Canadian will for your Canadian assets and a US will for your US assets, and these documents must be coordinated to ensure they work together and don’t inadvertently invalidate each other.

    Currency

    • Hold Cash in Your Spending Currency. To avoid being forced to exchange money at an unfavorable rate, maintain a cash buffer in Canadian dollars. This is especially important in retirement when you are no longer earning CAD but have regular CAD expenses. This cash reserve serves as your protection against currency market volatility.
    • Exchange Currency Wisely. Avoid the high fees of major banks and instead use a specialized currency exchange service for most transfers. Please see this article for a full examination of the pros and cons of various currency exchange options.

    Optional Optimizations: The Final 20% (for 80% of the Effort)

    The essentials listed above will put you on solid financial ground. The strategies below can offer additional benefits, but they come with significantly more complexity, cost, and/or risk. These are squarely in the “80% effort for 20% reward” category and should only be approached by dedicated optimizers, and likely will involve guidance from qualified cross-border professionals.

    • Explore a TFSA (Tax-Free Savings Account). While TFSAs offer fantastic tax-free growth from Canada’s perspective, they are not recognized as retirement accounts by the IRS. In other words, for a US person, a TFSA is treated as a foreign taxable investment account. Thus, you’ll want to avoid PFICs in a TFSA, and there is ongoing debate among cross-border accountants as to whether they also require complex foreign trust reporting. While TFSAs could still potentially be beneficial for US persons, the compliance costs and tax headaches can easily outweigh the advantages.
    • Use an RESP (Registered Education Savings Plan). The primary draw of an RESP is the government grant money (the CESG). However, like a TFSA, an RESP is not recognized as tax-sheltered by the IRS. Thus, a US person would have to report the annual investment growth to the IRS. This, combined with PFIC risk and the potential for foreign trust reporting requirements, make RESPs a challenge for US persons. However, in the right situation, the grant money could still make it a worthwhile strategy to explore.
    • Advanced Asset Location. This strategy involves carefully placing different types of assets in specific types of accounts to minimize taxes across both countries. Because the tax treatment of different investment income and account types varies between the US and Canada, designing an optimal strategy is a complex, dynamic puzzle best left to dedicated optimizers and professionals.
    • Complex Cross-Border Trusts. Beyond coordinated wills, some situations might call for more advanced structures like irrevocable trusts, alter-ego trusts, or joint partner trusts. These can be used for advanced estate tax mitigation, probate avoidance, or asset protection. However, they introduce significant legal costs and administrative complexity, and the rules governing them differ substantially between the US and Canada.

    In Conclusion

    In the end, there is no single right answer for how to manage your cross-border finances. Focusing intensely on optimizing one area may lead you to neglect another and no amount of optimization can guarantee a specific future outcome in a world of uncertainty. Plus, some areas of cross-border finance are much more important to get right than others.

    Ultimately, the goal isn’t to optimize a spreadsheet, but to optimize your life. By strategically applying your energy to the “essentials” and being deliberate about which “extras” are truly worth your time, you can build a secure cross-border financial future without sacrificing your present well-being. Get the big things right, and then go enjoy your new life in Canada.

  • How Best to Exchange Currency (CAD and USD)

    How Best to Exchange Currency (CAD and USD)

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    by

    Dave
    in , ,

    A thread that winds through many of the posts on this site is the idea of finding the balance between satisficing and optimizing, and currency exchange strategies are no exception.  Below, I’ll outline some of the best ways to exchange currency between Canadian Dollars (CAD) and US Dollars (USD).  There isn’t one best way, though, and the best way for you will ultimately depend on where you draw the line in terms of how much effort you want to expend on optimization.  It will also likely vary based on the amount and frequency of your currency exchanges.

    Currency Exchange Overview: Rates, Spread and Fees

    If you have assets on both sides of the border, you are likely going to find yourself in situations where you need to change Canadian dollars to US dollars or vice versa.  The efficiency with which you do this will ultimately be determined by three things: the exchange rate, the spread, and the fees.  Like with investing, predicting future exchange rates is impossible, but unlike investing I do think it’s possible to do a bit of currency exchange timing.  I’ll do a future post sharing some strategies on how I approach this.  For the most part, though, just like with investing, the main focus should be on controlling the costs, meaning reducing the spread and the fees as much as we can.

    Spread

    The spread is the difference between the rate that an institution buys a currency at (bid) vs. what they sell the currency at (ask).  The smaller the spread, the lower the cost.

    Fees

    In addition to making money on the spread, financial institutions also charge fees for currency exchanges.  For the Big 5 Banks, these fees are often invisible (baked into the spread), but some services list their fees explicitly. For some strategies (e.g. forex trading or Norbert’s Gambit), the fees would include any trading commissions incurred.

    A Real-World Example

    This is a snapshot of the non-cash exchange rate from one of the Big 5 Banks.

    If I click the two arrows in the middle to switch the direction of exchange, I get this:

    The gap between the two exchange rates (1.4332 – 1.3534 or .0798) is the spread. The “true” rate is the mid-market rate between them.

    Here’s what I see using one of the alternative foreign exchange services.

    Rather than making money on the spread, this provider quotes the exchange rate (which you’ll note is very close to the middle of the bid and ask prices given by the bank a few minutes before) and has explicit fees (46.11 USD).  Importantly, using this alternative provider results in getting an additional $365.48 CAD in our $10,000 USD exchange.

    Currency Exchange Options

    There are at least four main options when it comes to exchanging currency.

    MethodCostEaseTax Implications?
    Big 5 BanksHighHighNo
    Alt. Exch. SvcsLowHighNo
    Forex PlatformVery LowMediumPotentially
    Norbert’s GambitVery LowMediumPotentially

    This is where we really get into satisficing vs optimizing.  For me, the combination of low fees and simplicity has meant that I’ve used (and typically recommend) using an alternative exchange service.  If you’re exchanging a large amount, though, or exchanging currencies frequently, you may want to consider a forex broker or Norbert’s Gambit.  We’ll dig more into the details of each of these options below.

    One option that I’m going to cover for currency exchanges is airports.  Ideally, you should never use an airport (or other tourist facing entity) for currency exchanges.  Their spreads are exceptionally high, and they often also have high commission fees or service charges.  If you want to have Canadian cash on hand when you first arrive, you’ll get a better rate ordering from your US bank before you leave.

    The Big 5 Banks 

    The Big 5 Banks are still used by many Canadians to exchange between USD and CAD. In my opinion, the only reason to do this would be to get cash ahead of a trip if you had no other option.  Even for those offering “cross-border” banking, the spreads and fees are high.  Cross-border banking can be useful in some ways – for example, to transfer USD freely between a US account and a Canadian account – but I generally wouldn’t recommend using it for currency exchange.

    Alternative Exchange Services

    The landscape of alternative currency exchange and transfer services is always changing, but there are a few that have been around for a while that consistently offer better rates and lower fees than the Big 5 Banks.  Wise is the one I most often recommend.  Their costs are low, and their customer service is excellent.  Others that I have heard positive things about are OFX and Knightsbridge.

    In brief, here’s how these alternative currency exchange services work.

    1. Create an account.
    2. Link that account to your bank accounts (e.g. a USD one in the US and a CAD one in Canada)
    3. Initiate a transfer
    4. Receive the cash

    Note that these services aren’t instantaneous, they take a few (2-5) business days.  The speed varies based on currency, funding method (wire vs. ACH), and whether or not the bank accounts being used are domestic or international.  The fastest way to do it would be to use a USD account and CAD account that are both located in Canada and fund it by wire, but the fees are typically higher by wire than ACH (which is slower).

    You can also use these services to send money to other people. For example, we were able to use Wise to both exchange our USD into CAD and to send it to the escrow account at a Canadian bank when we were buying our house in Canada, before we had entered the country.

    Forex Trading

    Forex trading is the most direct, low cost way to exchange USD and CAD.  Interactive Brokers is a popular platform, but I have heard mixed things about their willingness to work with Canadian-resident US citizens.  There are a number of other forex brokers that operate in Canada, though, and some may be willing to do business with US persons.  Look for one that is regulated by IIROC as there are some scammy players in the forex space.

    One thing to bear in mind is that forex trading will require tax reporting if you make gains on your currency exchanges.  The forex broker will be able to provide you with the required tax slips.

    While forex trading may be lower cost, it isn’t free.  There are still spreads (which vary by institution and by account type) and many charge commissions.  There can also be account inactivity fees, funding or withdrawal fees.  Thus, before going this route, you’ll definitely want to fully understand the fee structure of the particular forex platform you’re using to make sure it makes sense for you.

    Norbert’s Gambit

    As a recovering optimizer, I love the idea of Norbert’s Gambit.  It offers a way to exchange unlimited amounts of USD and CAD for free, assuming you have a commission free brokerage account.  If you want to go down this route, I encourage you to research how exactly Norbert’s Gambit works at your particular brokerage as the details vary.  Generally speaking, though, it’s fairly simple.

    1. Buy shares in a cross-listed1listed both on a Canadian exchange and a US exchange stock equivalent to the value you want to exchange.
    2. Journal these shares over2at some brokerages you can do this yourself, others require you to call customer service to their cross-listed counterpart.
    3. Wait ~3 business days for this process to finalize.
    4. Sell the shares of the stock in the new currency.
    5. Wait for the trade to settle and withdraw the currency.

    Despite it potentially being very low cost, there are some potential risks with Norbert’s Gambit.

    Price Fluctuations

    The price of the cross-listed stock could change while you are waiting for the journaling process to finalize. For non-US persons, this is less of a risk as use could use a stable ETF like DLR / DLR.to.  For US persons, though, this would be considered a PFIC and, personally, I would avoid it.  Instead, I’d look for a high volume cross-listed stock like RBC ($RY) or TD Bank ($TD). The prices of these stocks could certainly change, though, in the few days this process takes.

    Tax Implications

    Because this approach relies on trading stocks (or ETFs), there will be tax reporting requirements. If the prices don’t change, you won’t owe any taxes, but it adds a bit of complexity. In addition to reporting any capital gains or losses, I’d also recommend not using stock that you currently own, have owned in the past 30 days, or will own in the next 30 days to ensure that you don’t run afoul of the superficial loss rules in the Income Tax Act.

    If you do use Norbert’s Gambit using one of these stocks, you’ll also want to be sure to time it so that you are not receiving a dividend during the time you hold the stock, as you may end up collecting a dividend on one side of the account and paying it out on the other. In this situation, the dividend you collect is taxable income and the dividend you pay is not deductible.

    Fees

    Even if you’re using a commission-free discount broker (like one recommended here), they may charge for journaling shares. For example, Questrade charges $9.95 per journaling request. They also offer free journaling with a Questrade Plus account, which costs $11.95 per month.

    Additional Information

    Despite these complexities, Norbert’s Gambit is a strategy I will explore further when and if I find myself in a situation where I am primarily using US assets to fund a Canadian lifestyle.  Finiki has a great overview of Norbert’s Gambit.  Note, though, that Finiki isn’t writing for a cross-border audience, so the ETFs they recommend may not be a good fit (due to PFIC risk) for US persons.  For people with US tax reporting requirements, this mega-list of cross-listed stocks offers some ideas.

    Thus, while the concept of Norbert’s Gambit is quite simple, there are complexities in the details, particularly for US persons.  If you’ll frequently be exchanging funds, though, or if you want to optimize a large exchange, it is worth considering.  This is definitely an area where you’ll want to do some thorough, brokerage-specific research to ensure that you have the latest info on the process, costs, and timing.

    Conclusion

    As we established at the outset, choosing a currency exchange strategy is a classic case of balancing optimization with convenience.

    • For the ‘Satisficer’: If your goal is a simple, transparent, and significantly cheaper process than the big banks, alternative services like Wise offer a great sweet spot. They require minimal effort for substantial savings.
    • For the ‘Optimizer’: If you are moving large sums or exchanging frequently and want to squeeze every last basis point out of the transaction, exploring a forex platform or mastering Norbert’s Gambit will yield the lowest possible costs, provided you’re comfortable with the added complexity and tax considerations.

    Ultimately, the goal is to make a conscious choice. By moving away from the high-cost default of the big banks, you’re already making a financially savvy decision that will leave more money in your pocket for your life in Canada.

    • 1
      listed both on a Canadian exchange and a US exchange
    • 2
      at some brokerages you can do this yourself, others require you to call customer service
  • Moving from the US to Canada – Part 3: After You Move

    Moving from the US to Canada – Part 3: After You Move

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    by

    Dave
    in , , , ,

    In Part 1 of this series on moving to Canada we covered some of the key finance related differences between the US and Canada. Part 2 highlights some important things to consider doing before you move, and here in Part 3 we’re going to focus on actions and considerations after you’ve made the move. This information is focused on things you’ll need to do to maintain compliance, ways to optimize your finances, and common pitfalls you’ll definitely want to steer clear of.

    Taxation

    US Tax Filing Requirement

    Most importantly, know that if you’re a US person (meaning a US citizen or Green Card holder) you’ll need to continue to file taxes in the US while you live in Canada. Because of the tax treaty, you likely won’t be double taxed on the same income. You’ll have to file in both countries, and the US will tax your worldwide income, but the taxes you pay in Canada will offset your US tax liability. We’ll talk a bit more about that in the next item.

    If you last lived in a state that had a state income tax, you’ll need to file that as well, unless you have formally severed ties with that state. The process for doing this varies and some states (e.g. California) are particularly sticky. For example, California doesn’t recognize the Foreign Earned Income Exclusion (see the next item) and it also doesn’t recognize RRSPs, despite them being recognized federally.

    Cross-border tax preparation is definitely an area where you should consider working with a professional. Line someone up well ahead of tax season, though, as cross-border tax experts are in demand and may not be able to take you on at the last minute.

    FEIE vs. FTC

    There are two mechanisms by which you can avoid double taxation when filing your US taxes: the foreign earned income exclusion (FEIE) and the foreign tax credit (FTC).

    1. Foreign Earned Income Exclusion (FEIE) – The FEIE allows you to exclude foreign earned income (up to $126,500 for tax year 2024). This can only be used on earned income, and going this route precludes you from claiming the Child Tax Credit
    2. Foreign Tax Credit (FTC) – The FTC gives you dollar-for-dollar credit for the foreign taxes that you paid to offset your US tax liability. This can be applied to passive income as well as earned income, and it enables you to also claim the refundable Child Tax Credit.

    As parents living in Canada (a higher tax location), the FTC route works better for us, but individual situations vary.

    File your FBAR and Form 8938

    If you have US tax filing requirements and you have a total of more than $10,000 in non-US accounts, the US requires that you file an FBAR each year. This is done separately from your US tax return. Form 8938 is filed with your taxes, and has a higher minimum filing requirement than the FBAR, but it is another important form to file if you have significant foreign (non-US) assets.

    File Form T1135

    On the Canadian side of things, if you have non-registered foreign assets with a total cost of more than $100,000 CAD, you’ll need to include Form T1135 with your annual Canadian tax filing. Note that this includes US-domiciled investments (like ETFs) even if they are held at a Canadian brokerage. This filing requirement holds for everyone, regardless of citizenship.

    Investing

    Avoid PFICs

    The IRS has punitive filing requirements for investments classed as Passive Foreign Investment Corporations (PFICs).  It isn’t illegal to invest in PFICs, but the filing requirements are so daunting (and expensive to have prepared) that you’ll almost certainly want to avoid them.

    So what is a PFIC?  A PFIC is any non-US corporation that earns at least 75% of its income passively. There is some grey area around exactly what this includes, but many experts say that this would cover foreign-domiciled ETFs and mutual funds. Thus, to avoid them I would generally recommend holding your non-registered account in USD and investing in US-domiciled ETFs.

    Because RRSPs are a recognized retirement account in the US you can hold Canadian ETFs and mutual funds in them, but in a TFSA these could potentially require PFIC filings.

    File an election for Roth IRAs with the CRA

    If you have a Roth IRA, the great news is that Canada recognizes its tax-free status.  To ensure that this happens, you need to do two things

    1. File an Election with the CRA along with your first tax return
    2. Do NOT contribute to the Roth IRA after becoming a Canadian resident.  If you do, you contaminate the account and all future growth becomes taxable.

    Please see this article for a more thorough explanation of the process for moving to Canada with a Roth IRA.

    Estate Planning

    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 cross-border expertise — a TEP qualification is a good place to start. And be prepared to spend at least a few thousand dollars on a proper crossborder estate plan.

    At a minimum, if you have assets on both sides of the border, you’ll want coordinated wills in each jurisdiction, along with POAs and health directives that are valid in your home province and, potentially, also in the US states where you spend significant time. Here are a couple of things to keep in mind as you work through it.

    Less Reliance on Revocable Trusts

    In the US, revocable living trusts are viewed as a flow-through from a tax perspective, but that is not true in Canada. They require a separate tax filing (using Form T3) and can lead to some double taxation risks. In the before you move section, I recommended potentially collapsing any revocable trusts you’d set up as part of your US estate plan.

    Trusts set up on the Canadian side can also be complicated if they involve people south of the border. For Canadian tax purposes, a trust’s residency is determined by the trustee’s residency. Thus, having a US relative as a trustee for a “Canadian” trust will also create issues. If you’re going to use trusts as part of your estate plan, you will definitely want to involve cross-border estate planning experts.

    Bond Requirement for Foreign Executors

    As we discussed earlier, Canada taxes estates on death, treating assets as if they have been sold (aka deemed disposition) rather than taxing beneficiaries who receive assets. To make sure local interests (the CRA, Canadian creditors, Canadian-resident beneficiaries) get their share before assets are removed from the jurisdiction, most provinces require a bond to be posted if a foreign executor is settling the estate. If you’re going to have a foreign executor (e.g. an American) for your Canadian will, you can put a clause in your will requesting (but not guaranteeing) that this bond requirement be waived.

    Banking

    Explore Alternative Banks

    Once you have a Canadian address, depending on your specific needs, you may want to open an account at one of Canada’s alternative banks. For example, EQ Bank generally has lower fees and pays higher interest rates than the traditional banks. Others to consider may be Tangerine or PC Financial, and there are always new ones on the horizon.

    Establish Canadian Credit

    Your US credit won’t follow you north of the border, so you’ll want to start establishing Canadian credit after you move. Signing up for a couple of no annual fee credit cards that you’ll keep open indefinitely is a good way to start. And, of course, use autopay to ensure that you pay them off in full every month.

    Healthcare

    Register for Provincial Healthcare

    Once you’ve established residency, you’ll want to sign up for provincial healthcare. In some provinces, there is a waiting period (e.g. 3 months) so you may need to have temporary private insurance to bridge the gap.

    You’ll also want to be mindful of ongoing residency requirements to maintain your health coverage. For example, here in Nova Scotia, to be eligible for provincial health insurance we need to be present in the province for 183 or more days every calendar year. You’ll definitely want to keep this in mind, particularly if you’re going to be splitting time between the US and Canada.

    Wrapping Up

    This concludes my brief overview of things to consider when moving from the US to Canada. In Part 1, I covered some of the differences to be mindful of, and Part 2 reviewed actions worth considering before you move. Managing your finances as a U.S. person in Canada is an ongoing process. Staying informed and periodically reviewing your situation is key to long-term financial well-being.

  • Moving from the US to Canada – Part 2: Before You Move

    Moving from the US to Canada – Part 2: Before You Move

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    by

    Dave
    in , , , ,

    If you’re planning to move the US to Canada and are looking for some personal finance tips, you’re in the right place. Part 1 of this series covers some of the differences between the US and Canada in terms of things like taxation, investing, banking and estate planning. Here in Part 2, we have a financial checklist of key items to consider before you move. And later, in Part 3, we’ll go over some actions you may want to take after moving.

    As discussed previously, engaging with experts in crossborder tax, financial and estate planning is absolutely a good idea. My intention here is to give you the information you need to DIY as much as your comfortable with, and to understand the issues and ask the right questions when and where you engage a professional. And if you have any questions or suggestions for additional topics, please feel free to post them in the comments.

    Also, as with Part 1, my primary intended audience are people with US tax reporting requirements (i.e. US citizens or Green Card holders) who have moved to Canada. At the same time, much of this may be relevant for other people moving to Canada as well.

    Let’s dig in to our financial checklist of actions to consider before moving from the US to Canada.

    Investing

    Consider a Roth Rollover

    If you’re planning to stay in Canada indefinitely, you may want to roll over traditional retirement accounts into a Roth IRA.  The rationale is that your future taxes (in Canada) would be higher than your current taxes in (the US).  This is particularly true if you’re coming from a state in the US with no state income tax. The specific math will vary based on income and residency, but ideally you’d spread these rollovers over a period of years to minimize the tax hit.

    And I say this elsewhere but it’s very important: once you’ve moved to Canada, be sure 1) not to contribute to your Roth IRA and 2) to file an election with the CRA.

    Find a Canada-friendly US brokerage

    Talk to the companies that hold your investments and ask if you’ll be able to continue to hold those investments and trade in those accounts once you are a Canadian resident.  Many US brokerages will allow you to keep retirement accounts, but few will allow you to keep taxable accounts.  If you can’t find anyone to hold your taxable account, don’t worry – you can transfer it (keeping the same US holdings) to a Canadian brokerage after you move.  Just don’t change the address on your US account ahead of time or it might get locked.

    It’s a good idea to sort this out ahead of your move because even some of the more Canada-friendly US brokerages will only let you open a new account while you are still a US resident. Here is a longer piece I wrote on finding a US brokerage that will continue working with you after you move to Canada.

    Consider shifting a 529 to a Relative or Friend

    529 plans1a US tax-advantaged education savings plan are not tax-sheltered in Canada.  They are viewed by the CRA as taxable brokerage accounts.  There is also the possibility that they could be deemed a resident trust and thus require Canadian trust filings. Thus, before you move, you may want to consider transferring ownership of a 529 to a trusted friend or relative to allow it to continue to grow tax-sheltered.

    Consider what to do with Retirement Accounts (IRA, 401b, 403b, 457b)

    The good news is that Canada generally respects the tax-deferred nature of these US plans under the Canada-US tax treaty.  Thus, as long as you’re at a Canada-friendly US brokerage, you can leave them where they are.  Alternatively, you could roll them into an IRA, which could have some advantages (e.g. more investment options, lower fees).  At the same time, note that rolling these into an IRA could also mean losing some benefits.  For example, 457bs don’t have an age restriction on penalty-free withdrawals.  Also, withdrawals from 401bs, 403bs, and 457bs are eligible for income splitting in Canada, while withdrawals from IRAs are not.

    It is also possible to bring a US IRA into a Canadian RRSP. This has a lot of nuance, though, and is not something to be done without full understanding and, likely, professional advice. I’ll write more on the pros and cons of that later, but in brief it is possible to get double-taxed on such a transfer if you aren’t careful. And when getting professional advice on this topic, it is worth considering the incentives of the person giving you advice. If they get paid based on the amount of money they manage for you, they may be more likely to suggest solutions that consolidate money under them.

    And with the Roth version of these accounts, you almost certainly will want to leave them in the US. Again, the key to getting your Roth recognized as tax-free in Canada is to 1) not make contributions from Canada and 2) to file an election with the CRA. Unlike a traditional IRA, there is no mechanism for rolling a Roth IRA into a TFSA (its closest Canadian equivalent).

    Taxation

    Consider Selling Real Estate

    If you own US real estate, you may want to sell it before establishing Canadian residency to avoid Canadian capital gains tax on future appreciation.  For Canadian tax purposes, due to the “deemed acquisition” we discussed in Part 1, you’ll establish a new cost basis for the property at its fair market value on the day you become a Canadian tax resident. This means that Canada will generally only tax the appreciation that occurs after this date.

    Consider Collapsing Trusts or Corporations

    The IRS and the CRA view structures like trusts and corporations differently, so strategies commonly used in the US can cause headaches (and tax issues) in Canada.  If you have a corporation (e.g. an LLC) or a trust (e.g. as part of an estate plan), it is definitely worth talking to an expert and considering collapsing them before you move.  It is often more complicated and costly to unwind these after moving.

    Banking

    Set Up a Canadian Bank Account

    The Big 5 Banks (RBC, TD, Scotiabank, BMO, CIBC) typically have a “newcomers” package to help you get started, some of which you can open even before you have a Canadian mailing address.  If you want to buy a house right away, it’s even possible to get approved for a mortgage at one of the Big 5 Banks using US credit, before you have a Canadian address.

    As mentioned in Part 1, though, once you’re settled, I encourage you to check out some of the alternative providers (e.g. EQ Bank and Wealthsimple) as they typically have better rates and lower fees.

    Exchange Currency Wisely

    And while the Big 5 Banks are useful for many things as a newcomer, exchanging currency isn’t one of them.  If you’re moving money, use an alternative service (like Wise) to get a better rate and save on fees.  You can use Wise to transfer money directly from your US bank (in USD) to your Canadian bank (in CAD) in a matter of days, for less than what a bank would charge you.

    Another way to spend your preferred currency is to use a no foreign transaction fee US credit card. To be very clear, I am not suggesting cash advances, which are a terrible way to exchange money. Using a no foreign transaction fee US credit card for purchases in Canada, however, can be an effective way to spend USD, essentially exchanging currency transaction by transaction.

    Before committing to a particular card, it’s worth making a couple of small purchases to check the rate you’re getting, but in my experience many US credit card providers offer a good exchange rate. This is a pretty frictionless way to spend USD in Canada.

    And, of course, you should only do this if you’re able to pay your credit card balance off in full each month.

    Insurance

    Get Private Health Insurance (depending on the Province)

    Some provinces have a waiting period (e.g. 3 months) before new residents are eligible for their health insurance. If you’re moving to a province with a waiting period, you should sign up for temporary private health insurance to bridge the gap during the interim.

    Depending on the particulars of your situation (e.g. expensive prescriptions), it may also be worth having extended health benefits. In my experience, though, these are typically only worth it if you’re able to get them through a job or other group plan.

    Review US Insurance Policies (beyond Health)

    If you’re continuing to carry US life, disability or long-term care insurance, confirm that these will remain valid after you move and would pay out if you were a Canadian resident. You may be better off cancelling these policies and replacing them with a Canadian equivalent.

    At the same time, as you consider Canadian insurance policies, be sure that you understand their tax implications. Some varieties of Canadian life insurance (e.g. those with an investment or cash value component) do not meet the US definition of life insurance. Thus, from the US perspective, they might be taxable and could even be considered a PFIC or a foreign trust. For this reason, even in Canada, a US person might find a US-based life insurance policy to be a better fit. Again, this is an area where expert advice could be helpful.

    Get your Driving History

    The process varies by state, so contact your local DMV to find out how to get your official driver’s history. In some states, you can only do this in person. You’ll need a history of 2 years (plus a valid US license) to get a Canadian license, and 10 years of history will help you get reduced insurance rates.

    And you should definitely do the math on whether or not it’s worth it, but if you’re looking to import a car when you move to Canada, here’s a good guide.

    In Conclusion

    These are a bunch of things you’ll definitely want to consider before moving from the US to Canada. This is certainly not a comprehensive list, though, and it can be helpful to talk to an expert beforehand, particularly in terms of taxation or financial planning. In Part 3, we’ll talk about key things to bear in mind after moving.

    Next up: Part 3 – What should you do (and not do) after moving from the US to Canada?

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      a US tax-advantaged education savings plan
  • Moving from the US to Canada – Part 1: What’s Different?

    Moving from the US to Canada – Part 1: What’s Different?

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    by

    Dave
    in , , , , ,

    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?

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

    How to Move a Roth IRA to Canada

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    by

    Dave
    in , ,

    The US-Canada Tax Treaty allows Canada to recognize Roth IRAs. If you follow a few simple steps, the CRA will treat your Roth IRA similarly to the US: capital gains, interest, and withdrawals will remain tax-free in Canada. When we moved to Canada, we found the election filing process a bit daunting, but it’s actually quite simple. This article explains the steps you need to take and the crucial things to avoid, so your Roth IRA maintains its tax-free status in Canada.

    Roth IRA Considerations Before Moving to Canada

    Before you move, you should probably shift your Roth IRA to a US brokerage that is willing to work with Canadian residents. Schwab and Fidelity are two that are typically willing to hold US retirement accounts for Canadian residents, whereas Vanguard is not, but these policies are fluid so it’s always worth confirming.

    Another think you might want to consider doing is converting any traditional IRAs to Roth IRAs ahead of your move. If you intend to remain in Canada for retirement, it’s likely that your tax rate in retirement will be higher than it is while living in the US, particularly if you’re living in a state without income tax. If you’re going to do these conversions, it is essential that they be completed before your move date. As we’ll discuss later, doing it afterwards will contaminate the Roth IRA and render any future growth taxable.

    Ideally, you’d spread these conversions out over the course of several years (to mitigate the US tax impact) and the math on whether or not it’s worthwhile will vary for each situation.

    Roth IRA Considerations After Moving to Canada

    After you move, there are a few key things to do (and not do) in order to preserve your Roth IRAs tax-free status in Canada.

    1. File an Election with the CRA

    The election is a letter that should accompany your first income tax filing to the CRA after becoming a Canadian resident. Per the CRA, this letter should contain the following information:

    • your name, SIN and SSN
    • the name and address of your Roth IRA trustee or administrator
    • your Roth IRA account number
    • the date that the Roth IRA was established
    • the date that the individual became resident in Canada
    • the balance of the Roth IRA on the date you became resident in Canada (or December 31, 2008, whichever is later)
    • the amount and date of the first Canadian Contribution made to the Roth IRA, if any
    • a signed statement indicating that you elect to defer taxation in Canada under paragraph 7 of Article XVIII of the Canada‑U.S. Treaty with respect to any income accrued in the Roth IRA for all tax years

    As we’ll discuss below, the highlighted piece of information should, ideally, be N/A.

    2. Make No Contributions after Moving to Canada

    This is very important. Do not make ANY contributions to your Roth IRA after becoming resident of Canada. If you do, in the CRA’s eyes, you are effectively splitting your Roth IRA in two. The value of the Roth IRA before that contribution remains tax-free, but all contributions, as well as the income going forward on both the pre-Canadian contribution and post-Canadian contribution portions of the IRA will be taxable.

    Needless to say, this is an undesirable outcome and could also prove to be a reporting headache as the split only exists in the CRA’s eyes and would not be reflected in your brokerage account.

    3. Keep a Copy of the Election and All Other Records

    You don’t need to re-file an election if you roll your Roth IRA over to another brokerage, but keep a clear paper trail that shows all rollovers, contributions (none), income and withdrawals so that you can maintain your tax-free status.

    In Conclusion

    The key lesson: file your election on time and make no contributions after moving to Canada. A little paperwork now saves significant headaches and potential taxes later. And if you haven’t followed these steps, seek the guidance of a cross-border CPA.

    You can find the CRA’s official policy on Roth IRAs at this link.

    One additional note — even though they are similar accounts, there is no mechanism for rolling a Roth IRA into a TFSA. You could theoretically do it, but because the TFSA is taxable from the US perspective there is no advantage.

  • Key Takeaways: How to Survive Tax Day as an American Abroad 2025 Webinar

    Key Takeaways: How to Survive Tax Day as an American Abroad 2025 Webinar

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    by

    Dave
    in

    US expat tax filing is an annual challenge, which is why I attended yesterday’s How to Survive Tax Day as an American Abroad 2025 webinar by the Democrats Abroad Taxation Task Force. It was packed with valuable information, and if you’re navigating the US expat tax filing maze, I highly recommend checking it out.

    Here are a few things that stood out for me:

    1. DIY Accuracy vs. Accountant “Audit Insurance”

    One point that really resonated was the discussion around tax preparation accuracy. The webinar highlighted something crucial: hiring an accountant isn’t necessarily “audit insurance,” and accuracy can often be higher when you prepare your own return. This mirrors my own experience — while I was always confident filing my own taxes stateside, I’ve used accountants for both our US and Canadian returns since moving north and I do the prep alongside them as a learning exercise, with the goal of eventually taking it back to DIY. Over the years, I’ve caught errors in the accountant-prepared versions more than once. This isn’t intended as a criticism — it’s the nature of the game — but it underscores that nobody cares about your return’s accuracy as much as you do. Hearing this perspective might just be the nudge I need to take the reins fully next tax season.

    2. The Hidden Costs of Tax Software

    Another eye-opening segment focused on the practices of major tax software companies like TurboTax and H&R Block. I’ll admit, I’ve used them in the past without much thought. However, the webinar pointed out that these companies spend millions lobbying Congress against simplifying the tax code and blocking free filing initiatives. While perhaps not shocking in hindsight, it hadn’t explicitly occurred to me before. Their business model thrives on complexity and obfuscation. If and when I return to full DIY filing, I’ll actively avoid these platforms. Based on what I’ve learned, I’ll likely use myexpattaxes for my US return, and Wealthsimple for on the Canadian side.

    3. Tax Advocacy for Americans Abroad

    Finally, the webinar reinforced the value of the work being done by the DA’s Taxation Task Force. They are actively advocating for significant changes that would simplify life for US expats, pushing Congress on critical issues like:

    • Residency-Based Taxation (RBT): Taxing based on where you live, not your citizenship.
    • FATCA Relief: Easing the burdensome Foreign Account Tax Compliance Act requirements for ordinary citizens abroad.
    • Simplification Initiatives: Generally making the crossborder tax process less painful.

    It was encouraging to hear that a bill for residency-based taxation (H.R. 10468) was introduced in December 2024. It’s currently undergoing scoring to assess its fiscal impact – a necessary step before it can potentially advance. It’s a long road, but seeing concrete legislative efforts is a positive sign. Supporting organizations like the DA Taxation Task Force feels like a direct way to contribute to making our crossborder financial lives easier.

    Final Thoughts

    Overall, I left the session feeling better equipped and more confident about navigating the US tax system from Canada. If this sounds relevant to you, I definitely encourage you to watch the webinar.

    You can check out the rest of their 2025 webinar series here. They have one coming up on May 21 on filing the FBAR.

  • Investing Advice for Teens

    Investing Advice for Teens

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    by

    Dave
    in

    When he was 16 and got his first job, my nephew (wisely) expressed an interest in starting to invest. So I put together some investing advice for teens and sent it to him. Please let me know in the comments if you have any questions or if there is anything you think should be added or changed. And note that he’s in the US, but I think this advice would apply equally well in Canada (swapping the Roth IRA for a TFSA).

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    TL;DR version

    Here’s all the investment advice you really need, as concisely as possible:

    • Save (and invest) 20% or more of your income.
    • Only invest in things you understand.
    • Avoid fees (e.g. expense ratios for ETFs and mutual funds, loads, commissions) as much as possible.
    • Diversification (investing in lots of different things at once) is key.
    • Buy and hold.  Invest for the long term (5+ years at a minimum, and ideally more) and DON’T PANIC (i.e. sell) when things go down.
    • Pay your credit card balance in full every month.
    • Take advantage of tax advantaged accounts (e.g. IRAs) and employer matched accounts (e.g. 401ks) as much as possible.

    A Bit More Info

    Choosing Your First Investment: ETFs vs. Mutual Funds

    So, what does this mean, exactly?  If I were you, I’d put whatever money you can into an “all-in-one” ETF or mutual fund.  The difference is that ETFs trade like stocks (meaning you buy them through a broker and may pay commission) while mutual funds you buy directly from the fund provider (for free).  The advantage of ETFs is that you don’t need to hit a minimum to invest (some brokers even allow you to buy fractional shares) but the downside is that you may have to pay commission when buying and / or selling.  Here in Canada, there are brokerages nowadays that offer no commission ETF trades, and I assume there are similar deals in the US.

    If I were you, I’d do an ETF if I could trade for free, but I might wait until I had enough for the mutual fund minimum (e.g. $3000) if I couldn’t.  For ETFs, I like the look of something like AOA from IShares — it gives you great diversity with a good asset allocation (80/20 stocks to bonds, with some international exposure) and the fees are very low.  If you’re going the mutual fund route, I’d go with something like VASGX at Vanguard, which is very similar.

    Once you have more money ($10,000+, or so), you might want to add some nuance, but honestly if you just did the above forever, you’d be in great shape.

    Why a Roth IRA is Key for Young Investors

    And, since you’re young and will not owe a lot of taxes, I’d strongly encourage you to invest in via a Roth IRA (which you can open at the broker or mutual fund company).  It pays to read the fine print here, as some folks have stupid fees.  Investing is actually really simple, but the whole industry tries to make it seem really complicated so that they can get away with charging high fees.

    The great thing about Roth IRAs is that you are paying all the taxes now, and then they grow tax free and whatever money you take out is totally tax free.  They are awesome when your income is relatively low.  Generally speaking, you can’t withdraw from an IRA until you’re 59.5 years old (there are some loopholes, though) so only put in money that you won’t need before then.  And you can contribute up to $7,000 per year.  That space doesn’t roll over, so if you don’t use it, you lose it.  I can’t recommend Roth IRAs highly enough, they are really, really good places to invest. And if you end up moving to Canada some day, you can take your Roth with you. 🙂

    Thoughts on Other Investments (Stock Picking, Crypto, Gold)

    You’ll hear about all sorts of investment ideas – stock picking, gold, crypto, etc.  Some reasonable folks allocate a small portion of their investments (e.g. 5%) to these types of things, but I don’t.  I did stock picking when I was young (and did OK) but the reality is that you can’t reliably beat the market, so there’s no point in trying.  Just invest in the whole thing (by doing the above).

    And, for me, gold and crypto fall in the “things I don’t understand” bucket, so I don’t invest in them.  I mean, I understand them, but I don’t understand why they have any value.  Both seem like collectibles to me, and I don’t trust collectibles to still have value in a few decades, which is when I need it.  Stocks, on the other hand, are pieces of real companies that do actual things to earn actual money, so I have more faith in them.  That doesn’t mean you can’t make money in collectibles – some people absolutely do – but I don’t believe you can reliably do it without insider knowledge, which I don’t have.  Investing in low-cost index funds, on the other hand, has worked consistently for at least 150 years, and requires no special knowledge.

    A Note on Credit Cards for Beginners

    And a note on credit cards – personally, I love credit cards, but not everyone agrees.  The reason I love them is because I have gotten a lot of free travel from them via sign-up rewards (aka travel hacking).  This can be a very useful game to play, as long as you are always careful to pay your full balance every money.  If you don’t do that, avoid credit cards at all costs.  The interest rates are insane.

    I could say much, much more about this, but this is already probably too long.  Again, please don’t ever hesitate to reach out (tomorrow, twenty years from now) if you have any questions.

    Love,
    Uncle Dave

  • How to Move a Taxable Account from the US to Canada

    How to Move a Taxable Account from the US to Canada

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    by

    Dave
    in , , ,

    In my experience, it is hard to find a US brokerage that will hold a taxable (called “non-registered” here in Canada) account for a Canadian resident. So when you move, you’ll likely by moving your US taxable investments to Canada with you. The good news is that it’s easy to find a Canadian brokerage that will hold this for a US citizen, and provide you with the tax documents that you need to do both your Canadian and US taxes.

    This article will just cover how to move US taxable investments to Canada. Moving retirement accounts (e.g. an IRA to an RRSP) is significantly more complicated and needs to be done very carefully. I’ll cover that in a future post.

    Step 1: Track the Adjusted Cost Base for your Holdings

    This warrants its own post, but it’s important to track the adjusted cost base (ACB) of your non-registered investments from both the US and Canadian perspective. For the US side, the ACB is based on the price you paid when you bought the assets. On the Canadian side, though, the ACB is set to the value of your assets on the day you move to Canada, and then continues to adjust as additional sales or purchases are made.

    Note that this is the day you move to Canada, not the day your account moves to Canada, thus you’ll almost certainly need to track it yourself, rather than relying on your Canadian brokerage.

    A popular tool for tracking this is the aptly named adjustedcostbase.ca. If you use this, I strongly encourage you to backup your data whenever you make updates, just in case.

    Step 2: Prepare your US Holdings for Transfer

    If you hold individual stocks or ETFs already, you should be OK. It wouldn’t hurt to check with the Canadian brokerage you’re going to use (see step 3), but unless you’re holding something unusual it shouldn’t be an issue.

    If you hold mutual funds, you’ll want to convert them to their ETF equivalents, if possible. The reason for this is that you likely won’t be able to hold US mutual funds in your Canadian brokerage account. So if you’re invested in something like VTSAX, you’ll want to contact Vanguard and ask them to convert it to the equivalent amount of the ETF version — VTI. This won’t be a taxable event.

    If you hold mutual funds that don’t have ETF equivalents, your options are limited. You could check with your Canadian brokerage about holding the mutual fund, but the answer will likely be no. In that case, your best option may be to sell the fund and buy a similar ETF, but this will be a taxable event.

    And just to be clear, even though US mutual funds are typically off-limits for Canadian residents, the same rules don’t generally apply to US ETFs. In fact, because they have lower fees, US ETFs are popular among savvy Canadian investors without any particular ties to the US.

    Step 3: Open a Canadian Brokerage Account

    I discuss this in more detail elsewhere but, in brief, my recommendation is usually Wealthsimple or Questrade. Both of these brokerages periodically offer a sign-up bonus (e.g. some % of cashback on the incoming assets) so it’s worth checking both when the time comes to transfer your account.

    When you create your account, you’re going to set up a non-registered (meaning taxable) USD account. By keeping the account in USD, you’ll both have a place to transfer your US holdings into and make it easier to avoid inadvertently buying something (e.g. a Canadian ETF) with PFIC filing requirements. This does open the door to potential currency risk but, in my opinion, the advantages outweigh the risks in terms of transferring in a US taxable account.

    You likely won’t be able to make your Canadian brokerage account until you have a Canadian address, but that’s OK. You shouldn’t have any trouble initiating the transfer after you move, so long as you do not preemptively update the address on your US brokerage to something Canadian. If you do this, the brokerage could potentially freeze the account or force a quick liquidation. Thus, rather than updating the address on your US account, my advice would be to simply set up a Canadian brokerage once you have an address, and then initiate the transfer from your US account. Once the transfer goes through, you can download your historical statements and close the US account.

    Note: if you were looking to set up a non-registered brokerage account in Canada from scratch (meaning you weren’t transferring in US assets) I might recommend a different approach. For example, you could potentially set up a CAD account and invest in individual stocks to avoid PFIC requirements, depending on your goals and other asset allocation.

    Step 4: Initiate an In-Kind Transfer

    This is where we actually move our US taxable investments to Canada. The exact process will depend on the brokerage, but the key is to do an in-kind transfer. That means your US brokerage will transfer the holdings to your Canadian brokerage, as opposed to selling them and sending the cash. If you do it as an in-kind transfer, it is not a taxable event. If you liquidate your US holdings and send the cash, it’s taxable.

    Here are the steps for Questrade.

    Here are the steps for Wealthsimple.

    After you initiate the transfer, it takes a while (around 20 business days). Because it’s an in-kind transfer, though, you aren’t out of the market during this time.

    Final Thoughts

    That’s it! Moving taxable investments from the US to Canada is quite easy (although a bit slow). And if you’re already invested in ETFs (or mutual funds with ETF equivalents), you should be able to do it in a way that doesn’t trigger any taxable events. If you have any questions, though, please don’t hesitate to post them in the comments.

    Two other things I want to mention:

    1) Exit Tax — Canada charges an exit tax when people who were Canadian tax residents move away. For your taxable account, this tax would be on the gains since you moved to Canada. In other words, Canada treats your taxable account as if you bought it the day you moved to Canada and sold it the day you moved away.

    2) Estate Planning — This is definitely outside the scope of this post, but as you transfer your assets from the US to Canada, you’ll need some sort of Canadian estate plan to cover these assets. A quick and dirty option if you want to keep your US estate plan intact and add a separate will for your Canadian assets could be something like MyExpatWill from LegalWills. This undoubtedly wouldn’t work for all situations, but it may be a good solution for some.