moving to Canada, first house

JJG · Post by **JJG** » Sun Sep 18, 2005 2:29 pm

My wife and I are planning a move back to Canada after working in the US on TN/H1B for the last 5 years. We would like to use our savings to buy our first home on return (hopefully not moving twice in the process). My US employer was recently acquired by a Canadian company, so I would be transferring to the Canadian parent. Our savings include 401k and employee stock purchase plans from my wife's former employer. I also have some stock options related to the acquisition, traded on the TSE.

1) Right now the transfer is in its planning stages, so there's some flexibility. Does it make sense to transfer late in the year, January 1, or sometime thereafter?

2) I read some previous threads about converting the 401k to an IRA and using the first home deduction. Would the timing of this be amenable to buying right away, or should I just take the money out of the 401k, pay the penalty and taxes, and claim them against Canadian taxes? Should I channel the IRA proceeds through an RRSP and take out the money under the HBP?

3) Am I correct in reading that selling the stock from the employee stock purchase plan after returning to Canada would absolve us of any tax burden (income or capital gains) in the US and Canada?

4) How would the stock options be treated? Would there be a difference between selling them prior to or after the move?

5) At what point in the house purchase process would the CCRA consider us as Canadian residents?

6) Since I'm transferring between divisions of a Canadian company, can this help me establish enough links to Canada to get the moving expenses to be deductable, eg. spend a week with family or a hotel in Canada prior to delivery of our belongings?

Thanks for all your help!

nelsona · Post by **nelsona** » Sun Sep 18, 2005 5:19 pm

1. no difference. You would want to make as much 'income' before the move, including anty cash out of IRA/401(k), options etc.

2. You would be better off to buy the house, taking ant IRA funds BEFORE becoming residents of canada, as the withdrawal would be taxable in Canada regardless of its end use. The HBP would take too long to get going given the year or so it would take to get any of the 401(k) transfers done. Unless you have some RRSPs from way back. Leave your US retirement funds in US if at all possible.

3. Indeed, this would be an ideal use of the deemd acquisition rules. The Cdn tax would be based on the value the day you became resident. You would not report sale in US.

4. The exercising the option will always be 'income, not cap gains, so will be subject to tax where you reside. The cap gains would only arise at the time you sold the stock resulting from the option, again taxable where you reside. Probably most favourable to exercise while in US. I would be getting specific pro advice on the selling of 'foreign' options while in US, if that is wha tyou decide to do.

5. When you or your family 'moved' in, unless this was many months after the purchase, in which case they 'could' try to say that you became resident when you bought it. Regardless this will not help you for point 6...

6. No. CRA takes a very simple view that you cannot claim moving expenses for a move to or from US unless you were a student before the move. Someone on this bord tries all sorts of manoeuvres to get his moving expenses deductible with no success. The hotel idea doesn't work. Get your firm to pay.

nelsona non grata... and non pro

Norbert Schlenker · Post by **Norbert Schlenker** » Mon Sep 19, 2005 3:02 pm

As usual, nelson's advice is very good. A few additional points.

<blockquote id="quote">quote:<hr height="1" noshade id="quote">2. You would be better off to buy the house, taking ant IRA funds BEFORE becoming residents of canada, as the withdrawal would be taxable in Canada regardless of its end use. The HBP would take too long to get going given the year or so it would take to get any of the 401(k) transfers done. Unless you have some RRSPs from way back. Leave your US retirement funds in US if at all possible.<hr height="1" noshade id="quote"></blockquote id="quote">

First you should answer this question: Do you need money out of the 401(k)s to buy the house? If not - say you have other resources - then there is no reason to go through the suggested complications.

<blockquote id="quote">quote:<hr height="1" noshade id="quote">4. The exercising the option will always be 'income, not cap gains, so will be subject to tax where you reside. The cap gains would only arise at the time you sold the stock resulting from the option, again taxable where you reside. Probably most favourable to exercise while in US. I would be getting specific pro advice on the selling of 'foreign' options while in US, if that is wha tyou decide to do.<hr height="1" noshade id="quote"></blockquote id="quote">

Getting professional advice is wise. Because your employer is now Canadian, it seems reasonable to assume that the options have been converted to options on a publicly traded Canadian corporation. If you're in Canada and you exercise such options, there are tax breaks that effectively make the proceeds of exercise subject to capital gains rates. (Legally, they're not capital gains, but they're only taxed at half rates.) You almost certainly do not want to exercise until after you're back in Canada.

<blockquote id="quote">quote:<hr height="1" noshade id="quote">6. No. CRA takes a very simple view that you cannot claim moving expenses for a move to or from US unless you were a student before the move. Someone on this bord tries all sorts of manoeuvres to get his moving expenses deductible with no success. The hotel idea doesn't work. Get your firm to pay.<hr height="1" noshade id="quote"></blockquote id="quote">

Let me reemphasize this. If it costs you ten grand to move, it's not deductible in the US and it's not deductible in Canada. If the company moves you, it's deductible to them. Talk to the HR people who you would talk to anyway about moving into the Canadian part of the organization. Propose this trade: "I make ten grand a month. That's a deductible expense to the corporation. The move will cost ten grand. If the corporation pays it, it's a deductible expense. For me, it wouldn't be. Here's what I want the company to do. Pay my moving expenses. In return, I'll work for a month in Canada for no pay. The company's financial situation will be identical, but you will have done me a tax favour."

Adjust the numbers as necessary to make it work out. If you can't stand not having a paycheque for a month, or if the company can't stand having an unpaid employee for that month, then you can always suggest two months at half pay.

nelsona · Post by **nelsona** » Mon Sep 19, 2005 5:07 pm

I'm not that big a fan of using HBP for house downpayment, and I'm even less a fan of using IRA to do this, since the IRA money you take out is still taxable (unlike HBP), and you can't put the money back in later (again, unlike HBP).

Like Norbert sez, think about whether you really need this money now.

If not, then leave it. If you do, then I guess your experience in going to US wasn't such a good one, as one should at least come back with a suitacase full of dosh for the trouble of being in US the past 5 miserable years.[;)]

nelsona non grata... and non pro