Canadian moving to US: sell investments first?

[PeanutYYZ]

I'm a Canadian citizen relocating to the US through an intra-company transfer. I'm trying to sort out the best way to handle my current Canadian investments. In particular, I'm not sure which investments I should leave untouched and which ones I should liquidate before the move in order to minimize my tax burden.

Current portfolio:
* TFSA: CAD$32,000 in ETFs at Questrade
* RRSP: CAD$100,000 in a Manulife group retirement plan through my employer
* Non-registered: CAD$550,000 in ETFs, also at Questrade, with unrealized capital gains of CAD$15,000

I'm in my mid-20s, so I don't intend to withdraw any money from the RRSP for a long time.

Let's assume first that I move to the US permanently and sever all ties to Canada. In that case:

TFSA: I should collapse this before I move, since it has no special status in the US, right?

RRSP: I think I can leave this intact. I've read different things about a possible step up in cost basis to avoid double taxation on the capital gains. Some people say that switching funds within the Manulife group retirement plan would be sufficient for this, but Manulife has a doc which says that:

"A fund switch will not accomplish the 'bump up' as it would not change the amount contributed to the plan — it would only increase the adjusted cost base (ACB)."

https://repsourcepublic.manulife.com/wp ... f8124687a6

What's the best way to handle this?

Non-registered: As I understand it, I owe capital gains tax on this as soon as I leave Canada, but I can defer those taxes until I sell the investments if I want to. However, I've also heard that the US will use my original contributions as the basis for calculating capital gains, not the value of the investments when I enter the US, and that for this reason I might be better off liquidating these investments before the move and re-buying once I'm in the US. Is that right?

Am I sort of on track here, or way off the mark?

Now let's go back and change the assumption about this being a permanent move. Suppose I intend to return to Canada at some point in the future (say 5 or 10 years from now). What, if anything, would change about the best way to approach my investments in that case?

Thanks for any help you can provide!

[colinc]

From an account access perspective:
You should definitely do something about your TFSA and non-registered accounts first. The SEC only allows brokers to serve residents of their own country; with the exception of your RRSP should you become a non-resident of Canada you would not be able to trade in your TFSA and non-registered accounts. It'd be best to either liquidate and withdraw your contributions or transfer these to a US broker.

From a US tax perspective each of those accounts becomes a filing burden each year. With the TFSA being the most onerous.
1. Every foreign account has to be reported if the total assets held with all of them sums up to over $10 000 on FBAR
Additionally if the amount is over $75 000 or $50 000 at the end of the year you need to fill 8938
http://www.irs.gov/Businesses/Compariso ... quirements
2. If you keep your TFSA it is not tax sheltered in the US but also you have to fill out forms 3520/3520A (which can get complicated). If you hold a mutual fund you'll also have to report PFICs
3. For RRSP the principal is not taxable but the gains are. You can however elect to defer the gains by filing 8891 every year. If you withdraw from your RRSP the withholding tax rate is 25% and is your final obligation as opposed to 30% and adding it to income as a resident.

For capital gains on departing Canada: even if you don't sell your investments the day you leave is considered the day you sold everything and you respectively apply your capital gains/losses.

Whether your move was permanent or not if it's over two years barring keeping a house with a spouse/dependents and significant ties to Canada you'd be considered non-resident because where you'd work and live is the US. The only way you'd avoid some of this is if your work in the US is temporary <2 years and you don't sever your Canadian ties and hence keep residence.

[nelsona]

You will be a non-resident, and subject to departure tax on your non-registered investemnts, so plan accordingly.

[PeanutYYZ]

[quote="nelsona"]You will be a non-resident, and subject to departure tax on your non-registered investemnts, so plan accordingly.[/quote]

What does "plan[ning] accordingly" entail here? Just being prepared to pay the taxes when they're due, or is there more I should do to prepare?

[nelsona]

That, and what colinc mentionned.

[rlb]

You should sell all of your ETFs if they are Canadian managed. These, like mutual funds, are PFICs, and the reporting and accounting burden is immense. You can sell them, declare any net capital gains, move the money south of the border and buy analagous ETFs in the US market.

[peters]

I am a US resident and a Canadian non-resident since 2008. When I left Canada in I kept RRSP (<$4k). I liquidated the account last year, and there was about 25% withholding in Canada. I wonder now how do I file this on my US tax return. Since the tax was already paid in Canada I wouldn't like to be double taxed.

[peters]

[quote="colinc"]From an account access perspective:

3. For RRSP the principal is not taxable but the gains are. You can however elect to defer the gains by filing 8891 every year. If you withdraw from your RRSP the withholding tax rate is 25% and is your final obligation as opposed to 30% and adding it to income as a resident.

[/quote]

Colin, I filed this form when we first came to Canad in 2008/2009. Since then there was no contribution to RRSP. I did not file this form since. Should I backfile last three years before I submit return with liquidated RRSP?

[peters]

I wanted to say "when we first came to US"

[nelsona]

Yes, you should.

After that report the gains since arrival, and use the $1000 Cdn tax as a credit on 1116 against the US tax on that income.