Americans moving to Canada should be aware of these 4 tax and investment implications

Toronto’s skyline in the evening.

The result of the 2024 elections left about half of the US displeased. As Donald Trump prepared to return to the White House, many Americans began considering a move up north, according to Google search traffic at least.

Interest in moving to Canada tends to spike after big political events such as the 2016 election and the overturning of the Roe v. Wade Supreme Court ruling.

This phenomenon doesn’t just live on the internet, either — some US residents are seriously considering the move.

“Even when Trump was elected last time, a lot of people felt that they weren’t as comfortable staying in the States, and so we actually did see an influx of people moving to Canada,” said Tiffany Woodfield, a senior financial advisor at SWAN Wealth Management of Raymond James.

Moving, especially across borders, is a big decision and shouldn’t be taken lightly. While the physical act of moving is complicated enough, Woodfield points out that there are a lot of financial considerations to be aware of.

“I think sometimes it can be a knee-jerk reaction,” Woodfield said of moving to Canada. “If they don’t plan ahead of time, they can fall into traps that end up costing them money.”

You need to file US and Canadian taxes

US citizens residing in Canada might not realize that even on the other side of the border, they’re still not free from their tax obligations to Uncle Sam.

If you are a US citizen, you still need to file federal US taxes and report your worldwide income to the IRS no matter where you live. In Canada, taxes are based on your residency status, so if you spend more than 183 days of the year living in Canada, you owe the Canadian government taxes.

To prevent ex-pats from getting taxed twice on their income, the US and Canada have a tax treaty that provides a foreign income tax credit for any income tax paid to the other country, Woodfield explained. That means you can offset your US tax liability with taxes already paid to Canada, but you still need to file two separate tax returns — one to Canada and one to the US — to receive a tax credit.

Additionally, the promise of free healthcare in Canada might sound enticing, but that does come at the cost of higher taxes, so be aware that your Canadian tax bill will probably be higher than what you paid in the US. You also don’t have the option to file joint income tax returns with your spouse in Canada, Woodfield warned.

Some Canadian investments have complicated tax implications

“As a US person living in Canada, you don’t want to invest in Canadian mutual funds or Canadian ETFs,” Woodfield said. That’s because these investments are considered Passive Foreign Income Corporations (PFIC) by the US government.

PFICs are subject to unfavorable tax treatment from the IRS. The associated tax forms are lengthy and complicated, and you may end up paying high tax rates. If you’re still a US citizen, investing in a Canadian mutual fund or ETF simply isn’t worth the hassle.

Bringing your retirement plan over the border can be tricky.

401(k)s are a popular way to save for retirement here in the US, but Canadian employers offer a different type of retirement plan: the Registered Retirement Savings Plan (RRSP).

Once you move to Canada, you won’t be able to actively manage the holdings in your 401(k), according to Woodfield. One workaround is to roll your 401(k) to an IRA and have it managed in Canada. US citizens should also be aware that, in most cases, they won’t be able to contribute to their IRA once they move to Canada.

Another option is to transfer your US retirement account into an RRSP. However, if you choose this step, make sure you’re committed to moving to Canada permanently, as you cannot move RRSPs to IRAs, Woodfield said.

You may not be able to bring your brokerage accounts over the border, either. Some people don’t realize this until they update their address with their US brokerage account after moving and receive a letter informing them that they have to close out their account.

You’ll need a new financial advisor…and a lot of time

US financial advisors are prohibited by law from providing Canadian residents with financial advice, as they aren’t licensed in Canada. If you want expert advice, you need to work with a dual Canada / US licensed advisor.

The earlier you start preparing for your cross-border move, the better — ideally, one to two tax years before moving, Woodfield said. That way, you can plan certain taxable events ahead of time and realize the greatest amount of savings, such as liquidating mutual funds. It’s also easier to sell your home while you’re still in the US, Woodfield said.

If you’ve already begun the moving process or you’re already in Canada, don’t panic. Woodfield has worked with plenty of people after they’ve already moved, but the more time you give yourself, the better.

Moving across the border is no simple feat, so make sure you’re confident about your choice.

“I’ve had clients that have moved, and then after the fact, they think, ‘Oh, I shouldn’t have done this,'” Woodfield said.”It’s very hard to go back, so people need to be aware of that.”