# Canadian relocating in the U.S.



## Xarr (Mar 6, 2016)

Hello all!

In mid-April, I will be relocating to Massachusetts from Montreal for at least 2 years (I am a Canadian citizen going on a L1 visa). The tricky thing is I have a wife and a kid that would need to stay in Canada until the end of the 2016. They would then rent the house and come join me.

Are there other folks here that were in my situation? Is it a situation so bad (tax wise) that I need to try and convince my family to depart as soon as possible?

Is it possible to stay Canadian resident for tax purposes and then change my status once they arrive in the US? How do you determine the degree of punishment that I would take for doing that?

I have reached for 5-6 ''cross-border tax advisors'' firms in my area last week but strangely, only two returned my call. First one said he was not interested in taking me as a client. Second one (KPMG) asked for 600$ for a 60 minute discussion. Anyone knows if it's worth it? My guts says yes but just want to make sure.

So my other question would be: does anyone knows a company or individual that could help me plan the best route possible and is affordable? Or any publication that is a ''must-read'' before I relocate?

Many thanks!


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## AltaRed (Jun 8, 2009)

There is a lot of cross-border tax information on Serbinski's tax forum. There is also Finiki that has some material on the issue.

My best guess right now is you will not be a tax resident of the UsA untli your family joins you in the USA, i.e. you will remain a tax resident of Canada until the day your family crosses the border. The tie breaking rules in the US-Can tax treaty determine that, not you. 

You need to know a lot of the quirks about triggering a tax residency chnage. One key one that zings people with substantial capital property such as stocks is the deemed disposition of those assets at fair market value on the date of departure. That can be a huge tax bill. Another is that holding Canadian domiciled mutual funds, REITs and ETFs (all trust structures) in non-registered accounts will cause a ton of pain and paperwork. Not an issue in RRSPs. And you have to fill out the right form when you are in the USA to avoid taxation of income earned in the RRSP AND you have to file Foreign holdings forms to US Treasury every year on your foreign (Canadian) holdings.

Pay some money for cross-border tax advice. If you are going on an L1 Visa, that means you are being sponsored by an employer. That employer SHOULD be providing you with access to a cross-border tax accountant on their dime, at least for a certain number of billing hours. Insist that they do. Any competent corporate employer should do that (standard practice for the most part).

There are many cross-border tax accountants. All the big firms have them. I've used PWC and others over the years.


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## james4beach (Nov 15, 2012)

Xarr said:


> Is it possible to stay Canadian resident for tax purposes and then change my status once they arrive in the US? How do you determine the degree of punishment that I would take for doing that?


You could actually remain a Canadian tax resident for years, as long as you maintain a Canadian residence (have a home in Canada). Whether or not this makes sense depends on a lot of factors, a big one being how long you think you'll stay in the US.

As AltaRed said, I think the most likely scenario is that you remain a Canadian tax resident until your family joins you in the US. During that period, you would be a US non-resident (or "non resident alien" as the Americans call it).

Unfortunately the whole situation is pretty complex and you really need to consult with an expert. If you're on L1 does that mean your company is transferring you? If so I think they should connect you with a tax expert, and maybe pay for it.

Another word of caution... Canadians seem to have this impression that working in the US is more glamorous and more profitable. I've been working in the US for exactly two years now and I can tell you that coming to the US has not been as profitable as I thought -- even with the US dollar as high as it is. My friends still think I'm "making a fortune" in the US. Hardly. If I had to summarize why, it's

1. US taxes are actually a lot higher than you think. Once you add social security and medicare taxes on top of federal and state, the total bill is awfully high. If you're seeking a move to save money in taxes, you're much better off going to Ontario or Alberta than the USA! I'm in a relatively high tax state, and you will be too. Seriously... if you want lower taxes, go to AB, BC, or ON.

2. The complicated cross border tax issues. I hope your bill works out to less than mine, but in the two years I've worked in the US, I've already paid around $2,000 in tax advice & acounting. And once I move back to Canada, there will still be complications to unravel the whole thing. It's not only expensive, it's also stressful.

3. Hidden liabilities -- big ones being health care and tax penalties. Even though my US company has a health plan that seemingly covers everything it, there are situations where you can still end up with a medical bill to pay out of pocket. This is the kind of thing that may not affect you for a few years, and then bam, you've got a 10 K medical bill to pay. And then there are tax penalties. The I.R.S. is an extremely aggressive organization who perceives tax liars & cheats around every corner. There are threats of big penalties everywhere you look. Failure to file your TFSA disclosure? 10 K penalty. Failure to file your FBAR ? Penalty of possibly 100 K or up to 50% of the value of accounts that haven't been reported.

All I'm saying is: although there are great things about the U.S., don't be overly tempted by "high salaries" working south of the border. It's misleading. And if they haven't offered you a higher salary than Quebec, *then you must demand higher pay* otherwise you might be way better off quitting and seeking a job in Canada.


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## james4beach (Nov 15, 2012)

Apologies for the rant, by the way. I've been working on my US taxes tonight and my form to disclose my TFSA is due in a week (it's 11 pages of forms just for the TFSA).

You must go see an expert. At the very least, you're going to have to get rid of your TFSA and get rid of all Canadian mutual funds and ETFs that you hold non-registered.


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## Xarr (Mar 6, 2016)

Thanks for the replies. 

Yeah I have been given a relocation package and it includes a ''tax shortfall and/or consulting'' of US$ 2K. Im gonna try to get more. 

And I don't have any financial investments other than RRSP (and house) so there is one less worry there I guess.


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## Xarr (Mar 6, 2016)

james4beach said:


> 1. US taxes are actually a lot higher than you think. Once you add social security and medicare taxes on top of federal and state, the total bill is awfully high. If you're seeking a move to save money in taxes, you're much better off going to Ontario or Alberta than the USA! I'm in a relatively high tax state, and you will be too. Seriously... if you want lower taxes, go to AB, BC, or ON.


I know I won't be saving much in taxes unfortunately. Going mostly for better future opportunities in my work industry and a change in scenery.


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## Numbersman61 (Jan 26, 2015)

Google "serbinski accounting firms forums" for forum discussion on your issues


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## Eclectic12 (Oct 20, 2010)

Xarr said:


> ... And I don't have any financial investments other than RRSP (and house) so there is one less worry there I guess.


Depends on your definition of worry and whether you plan on return to Canada before withdrawing from the RRSP.

This article says you likely are better off selling everything in your RRSP just before taking up residence in the US then re-buying it. Apparently only the cost base is tax US tax exempt for the RRSP.

http://www.theglobeandmail.com/glob...er-before-you-move-to-the-us/article21934012/


Cheers


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## Eclectic12 (Oct 20, 2010)

Xarr said:


> ... In mid-April, I will be relocating to Massachusetts from Montreal for at least 2 years (I am a Canadian citizen going on a L1 visa).


The good news is that Massachusetts does not allow city income tax so that's one less worry.
http://taxes.about.com/od/statetaxes/a/States-Prohibiting-City-Income-Taxes.htm


Cheers


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> ... Another word of caution... Canadians seem to have this impression that working in the US is more glamorous and more profitable ...


I always have trouble understanding why so many are lead astray looking at one aspect instead of investigating the whole situation. It is almost thirty years I've been reading comments by those who have moved down to the US that "when it is all added up, I am slightly ahead/behind instead of the big gain expected".

There is a lot of variation between states (ex some states prohibit cities from charging income tax while other states allow it), so YMMV.


The most common reasons for staying despite the differences is how limited particular jobs are for their profession in Canada or being close to family. I did recall one small business guy who was single who said he was better off, hands over fist. He was in the minority though.


Cheers


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## james4beach (Nov 15, 2012)

james4beach said:


> 3. Hidden liabilities -- big ones being health care and tax penalties. Even though my US company has a health plan that seemingly covers everything it, there are situations where you can still end up with a medical bill to pay out of pocket. This is the kind of thing that may not affect you for a few years, and then bam, you've got a 10 K medical bill to pay.
> . . .
> All I'm saying is: although there are great things about the U.S., don't be overly tempted by "high salaries" working south of the border. It's misleading.


Bit of an old thread, but it seemed relevant to this story I saw today
Health Insurance Costs Surpass $20,000 Per Year, Hitting a Record



> While employers pay most of the costs of coverage, according to the survey, workers’ average contribution is now $6,000 for a family plan. That’s just their share of upfront premiums, *and doesn’t include co-payments*, deductibles and other forms of cost-sharing once they need care.


I wanted to point this out again, in case there are people tempted to work in the US because of higher salaries, or their beliefs that the US has lower taxes. Medical coverage in the US is extremely expensive. Working for a company and being covered by a health plan does not usually pay all your expenses.

This average $6,000 per US worker figure doesn't even cover their co-pays. I was very surprised by this co-pay thing once I started working in the US. What happens is that when you go to a doctor or hospital, you get a bill. Your insurer covers some amount, but on many services they will only pay something like 80% of the total. The remaining amount is yours to pay.

So this latest survey is showing that the average worker first pays $6,000 just to have coverage, but then they also pay more on top of that if there's actually medical services.

A few people in my office had paid something like $10,000 related to pregnancy health care. I think it's also common that others receiving surgeries will pay a few tens of thousands $ out of pocket, even with health coverage.

IMO anyone considering taking a job in the US should look carefully at these healthcare costs before accepting the job. Also consider that if you're ever laid off, you will have no coverage at all.


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