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By Elena Hanson and Darren Coleman
Special to the Financial Independence Hub
Canadians with assets in the United States and/or family members who are American citizens can face a whole range of complexities when it comes to their financial matters. This can include everything from tax – on both sides of the border – to a myriad of issues concerning an estate, gifting, investments, what have you.
This is what inspired us to develop a unique podcast series called Two Way Traffic. In a nutshell, it’s a give-and-take discussion by two experts who share a great deal of experience: an accountant specializing in cross-border tax, and a wealth-management advisor licensed in both Canada and the United States.
Two Way Traffic, produced by the Acme Podcasting Company, kicked off in January and involves five episodes. Every month we release another one with a different topic.
Through our combined experience, we’ve seen it all, but inevitably a situation arises that presents new challenges. Take the example of a Canadian widow with an account managed by a U.S. trust company. One department of that trust company wanted her to transfer the account because she was in Canada, while another department with the same company said she couldn’t transfer! She then hired a lawyer to effectively have one department argue with the other department: and all at her own cost. The problem could have been avoided altogether if her spouse had sought advice from cross-border experts before he had put this structure in place.
Example: A Canadian IT pro with a California customer
Or take the example of a Canadian IT professional who is incorporated in Canada. This person works for a California-based customer; some of the work is done out of his home in Canada and some of it is done in the U.S. But here is the problem. The person gets paid in stock options and makes a popular U.S. 83(b) election to pay tax on stock options at grant when the value is low in the hopes of significant appreciation in the future. However, this results in a complete mismatch of Canadian and U.S. taxes at both the personal and corporate levels. As with the other example, if this person had reached out to a tax accountant with cross-border expertise, such a mistake would have been avoided.
Two Way Traffic is just that. It’s not just trucks carrying freight that go across the border every day. It’s also people and – the most complicated commodity of all – money/assets. Our podcast series includes five episodes, each one designed to guide listeners through the complications, implications and advantages of having money and family on both sides of the border.
A million Americans live in Canada
This is a particularly pertinent subject right now. With over one million Americans living in Canada, a booming job market for professionals in both countries, and a new free-trade agreement just signed, the cross-border movement of skilled workers has never been higher. Also, many Canadians have family or property in the U.S. who may not have yet considered the effects of U.S. taxes on their financial plans. This podcast will bring to light those areas of your Canada/U.S. finances where you might be missing something crucial.
For example, the new US-Mexico-Canada trade agreement will impact a lot of people and a lot of companies. With cross-border movement, things can get very murky, and murky is the last thing you want when it comes to determining country of residence, taxes, employment benefits, pensions, and so on.
You have to think about tax residency, which is a very different animal in Canada than it is in the United States. Tax reporting can be complicated if a U.S. person has Canadian corporate ownership. For example, there are different anti-deferral tax provisions that require a U.S. citizen who is a shareholder of a Canadian corporation to recognize corporate income when it is earned and not distributed. Things in Canada are done differently; you are taxed personally when the corporate income is distributed. Bottom line? This can be a major headache for incorporated U.S. citizens who have corporate entities in Canada, or for that matter, anywhere outside the U.S.
Tax reporting can also be complicated if a U.S. person holds such popular Canadian savings vehicles as RESPs and TFSAs. There is also a significant difference between a U.S. person who expatriates by giving up their U.S. nationality, and a Canadian who chooses to become a non-resident of Canada.
There are a great many things to consider in the cross-border world of tax. Are you an American or a Canadian who is living, studying or working across the border? Are you doing business, vacationing, or planning to retire across the border? Have you considered all your tax obligations? Have you planned to maximize your tax savings and minimize your risks?
Integrating financial, legal, accounting, tax and investing advice
Two Way Traffic is about integrating financial, legal, and accounting advice with proper investment and tax planning for all cross-border issues.
The first episode, released in December, was about Mobility and we discussed:
- Movement in both directions
- Different definitions of tax residency in the U.S. and Canada and how to determine residency
- Treaty conformity at the federal and state levels
- The complexity and requirements when dealing with an immigration lawyer, especially regarding tax season
- The penalty systems in the two countries on departure and annual compliance
- Dealing with financial assets and accounts on departure and residency
- What happens when you return to Canada as a U.S. citizen or a greencard holder
- All kinds of possibilities concerning expatriation.
The other four episodes in the series are:
- Do’s and Don’ts for Business Owners
- When Your Kids Attend U.S. Schools
- Death and Taxes including Divorce
You can access the podcast series at www.colemanwealth.com, www.hcbtax.com, or at this site:
https://share.transistor.fm/s/f80076f1
Elena Hanson is the principal of Hanson Crossborder Tax, based in Oakville, Ontario. Darren Coleman is the principal of Portage Cross Border Wealth Management of Raymond James, based in Toronto.
