My wife and I are Canadian citizens, currently living and working in the USA under permanent resident (i.e. green card) status. We are considering moving back to Canada in the next couple of years, and want to make sure we get our affairs in order to minimize taxes owed, maximize or freedom, and simplify our finances. One of our key considerations is whether we should obtain US citizenship before moving back to Canada.
Some details on us:
- We both have RRSPs in Canada
- We both have traditional IRAs in the USA
- We have unrealized capital gains in our joint taxable accounts
- We are planning to stop working at a relatively young age (late 40s)
- We will both be entitled to Social Security (we both have more than 40 quarters of contributions), CPP and OAS
- We would not be considered "covered expatriates" under the US expatriation rules
US citizenship considerations:
- Can we wipe out the unrealized capital gains in our joint taxable accounts when we leave the USA if we wait to sell those investments until after we've relinquished our green cards? And this benefit would not be available if we obtained US citizenship?
- Should we convert our traditional IRAs to Roth before we leave? This would leave us with a big tax bill over the next couple of years, and we're also in a high tax state. Since we're planning to retire at a relatively young age, can we perform a slow Roth conversion after we move to Canada to minimize our taxes owed? Is this option available whether or not we obtain US citizenship?
- My understanding is that it is much more complex to manage finances as a US (or dual) citizen living in Canada. PFIC rules, US taxes on worldwide income, etc. It's hard to put a subjective measure on this additional complexity. On the other hand, I'm concerned about having financial interests in the USA (IRA, Social Security) without the protections of US citizenship.
Thank you for reading this far and sharing any thoughts you might have on our situation. We'll be interested in obtaining professional tax help, so any recommendations you have would be helpful (here or via PM).
Obtaining US citizenship before moving back to Canada?
Moderator: Mark T Serbinski CA CPA
1. No, your unrealized gains will eventually be taxable, since you have a GC, even if you get rid of GC. That strategy is only for those who would become non-resisnt aliens (ie. were in temp status).
2. The only option that would make sense -- id you want to convert - is to do this BEFORE becoming Cdn resident. Once you put any new monies (IRA to Roth would be new money) you break the Roth for Cdn purposes, which defeats the reason for converting.
3. Your financial interests would not be harmed if you gave up GC -- which would disappear in a couple of years anyways. Citizenship really only allows to to come back to US without any issues.
So, unless you have a HUGE US-based estate, there is no tax advantage to US citizenship. Its an ease of movement issue. The PFIC, etc issues would only last until you rescinded your GC or citizenship., which you could decide on later.
2. The only option that would make sense -- id you want to convert - is to do this BEFORE becoming Cdn resident. Once you put any new monies (IRA to Roth would be new money) you break the Roth for Cdn purposes, which defeats the reason for converting.
3. Your financial interests would not be harmed if you gave up GC -- which would disappear in a couple of years anyways. Citizenship really only allows to to come back to US without any issues.
So, unless you have a HUGE US-based estate, there is no tax advantage to US citizenship. Its an ease of movement issue. The PFIC, etc issues would only last until you rescinded your GC or citizenship., which you could decide on later.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 
Thank you, Nelson. A follow-up question on the unrealized gains...
Say I bought stock of ABC corporation in 2012 for $100. I leave the USA and relinquish my green card in 2019. On the date I leave the USA, the stock is worth $125. On the date I relinquish my green card, the stock is worth $140. I decide to sell the stock in 2021, at which time the stock is worth $150.
I assume I will owe capital gains tax to CRA on a gain of $25, since that amount was earned while I was a resident of Canada. How much of the gain would I owe capital gains tax on to the IRS, and when would I pay it? Is the capital gains tax in either country creditable in the other country?
Say I bought stock of ABC corporation in 2012 for $100. I leave the USA and relinquish my green card in 2019. On the date I leave the USA, the stock is worth $125. On the date I relinquish my green card, the stock is worth $140. I decide to sell the stock in 2021, at which time the stock is worth $150.
I assume I will owe capital gains tax to CRA on a gain of $25, since that amount was earned while I was a resident of Canada. How much of the gain would I owe capital gains tax on to the IRS, and when would I pay it? Is the capital gains tax in either country creditable in the other country?
For Canada, it is clear that your gain would be $25 in that scenario. Lets say that would be $6.
For US, much would depend on your expatriation tax situation, which I won't go into here.
but, if you were a GC or USC at the time of sale, your gain for US purposes would be $50 long-term cap gains. With some foreign tax credit manipulations on the US side, IRS would give you credit for the Cdn tax you paid on $25 of those gains (when you were a Cdn resident), lthe lesser of $6 or the what actual US tax on $25 long-term gains.
For US, much would depend on your expatriation tax situation, which I won't go into here.
but, if you were a GC or USC at the time of sale, your gain for US purposes would be $50 long-term cap gains. With some foreign tax credit manipulations on the US side, IRS would give you credit for the Cdn tax you paid on $25 of those gains (when you were a Cdn resident), lthe lesser of $6 or the what actual US tax on $25 long-term gains.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Okay, but I'm wondering what the tax rules would be if I sold after I relinquished my green card. In this scenario, I relinquished my green card in 2019 and sold the stock in 2021.
After reading the instructions for IRS Form 8854, it seems I would owe USA capital gains taxes at departure if I were a "covered expatriate", using the fair market value of the asset. So if I were a "covered expatriate", I would owe capital gains taxes to the IRS in 2019 on a gain of $25. However, it looks like the first $699,000 in gains can be eliminated, so my understanding is that I likely wouldn't owe any capital gains taxes to the IRS if I was a "covered expatriate".
My scenario is different because I'm not a "covered expatriate". I'm wondering how capital gains are calculated if the asset is sold after I've relinquished my green card.
Thank you!
After reading the instructions for IRS Form 8854, it seems I would owe USA capital gains taxes at departure if I were a "covered expatriate", using the fair market value of the asset. So if I were a "covered expatriate", I would owe capital gains taxes to the IRS in 2019 on a gain of $25. However, it looks like the first $699,000 in gains can be eliminated, so my understanding is that I likely wouldn't owe any capital gains taxes to the IRS if I was a "covered expatriate".
My scenario is different because I'm not a "covered expatriate". I'm wondering how capital gains are calculated if the asset is sold after I've relinquished my green card.
Thank you!
Nelson, could you help me understand how my capital gains tax situation would be different from the individual who posted in this thread?
viewtopic.php?t=12140
As I understand it, I'm considered a "long term permanent resident", since I've been in the USA for more than 8 of the last 15 years under permanent resident status. I would be subject to the exit tax rules and would need to file Form 8854(?); however, I would not be a covered expatriate. I've seen plenty of information indicating that covered expatriates would have a deemed disposition and pay capital gains tax on expatriation, but I'm having a hard time finding information on how this works for a non-covered expatriate.
Thank you.
viewtopic.php?t=12140
As I understand it, I'm considered a "long term permanent resident", since I've been in the USA for more than 8 of the last 15 years under permanent resident status. I would be subject to the exit tax rules and would need to file Form 8854(?); however, I would not be a covered expatriate. I've seen plenty of information indicating that covered expatriates would have a deemed disposition and pay capital gains tax on expatriation, but I'm having a hard time finding information on how this works for a non-covered expatriate.
Thank you.
It isn't different. I just chose not to delve into a subject that I had already discussed (one is always encouraged to find existing answers), and that you had come to the correct understanding.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Thank you, Nelson. That clarification on the exit tax is very helpful.
I guess I'm still confused about whether we would eventually need to pay capital gains tax if we sell the assets in our non-registered accounts *after* we expatriate.
I asked "Can we wipe out the unrealized capital gains in our joint taxable accounts when we leave the USA if we wait to sell those investments until after we've relinquished our green cards?" and your response was "No, your unrealized gains will eventually be taxable, since you have a GC, even if you get rid of GC. That strategy is only for those who would become non-resident aliens (ie. were in temp status)."
In the other thread, it sounded like you were telling that green card holder they could wipe out unrealized gains in their taxable (i.e. non-registered) accounts if they sold their assets after they expatriated.
It's quite possible I've miscommunicated something, could you please point me in the right direction?
Thank you again!
I guess I'm still confused about whether we would eventually need to pay capital gains tax if we sell the assets in our non-registered accounts *after* we expatriate.
I asked "Can we wipe out the unrealized capital gains in our joint taxable accounts when we leave the USA if we wait to sell those investments until after we've relinquished our green cards?" and your response was "No, your unrealized gains will eventually be taxable, since you have a GC, even if you get rid of GC. That strategy is only for those who would become non-resident aliens (ie. were in temp status)."
In the other thread, it sounded like you were telling that green card holder they could wipe out unrealized gains in their taxable (i.e. non-registered) accounts if they sold their assets after they expatriated.
It's quite possible I've miscommunicated something, could you please point me in the right direction?
Thank you again!
The answer I gave you was based on you being a covered expat, since your question was about getting US citizenship or not, I was not going to delve into expat tax.
But you know the answer now, by looking up old posts, which is my goal at this point ion the history of this forum.
But you know the answer now, by looking up old posts, which is my goal at this point ion the history of this forum.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Particularly since after that initial answer, I have repeatedly said that your expat tax would dictate the taxability of your US gains.
How many times do you want me to give the correct answer. You have it already.
How many times do you want me to give the correct answer. You have it already.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Nelsona,
What is the advantages of having Green Card in US? My company offered me H1B visa from TN, but I refused it. What I know that, GC will last for 10 years! So, even if I move to a cheaper country e.g. singapore, I will still need to pay tax to US for that 10 years although I live in singapore.
Is that true?
What is the advantages of having Green Card in US? My company offered me H1B visa from TN, but I refused it. What I know that, GC will last for 10 years! So, even if I move to a cheaper country e.g. singapore, I will still need to pay tax to US for that 10 years although I live in singapore.
Is that true?
Re: Obtaining US citizenship before moving back to Canada?
Hi Fug1,
I'm in a similar situation to you: Canadian citizen on green card, with investments at Vanguard (IRA, Roth IRA, and taxable), almost 40 SS credits and contemplating getting a US citizenship before leaving.
Your questions:
- Wiping out unrealized capital gains after moving to Canada: Seems possible for a non-covered expatriate if you sell after surrendering your GC and becoming a US non-resident (maybe the next year to be safe?).
- Roth conversion ladder: Like Nelsona said, not doable while a Canadian resident since Canada would not recognize the newly converted money.
- Protection of IRAs and SS without a US citizenship: Not worried about that.
My thoughts so far:
- The simplest strategy for life/investments by far is to stay in the US, leave investments in the US, Canada leaves you alone.
- If you want to go back to Canada, the simplest strategy is to relinquish GC, sell taxable (no tax on capital gains) and transfer it to Canada, use TFSA, keep traditional/Roth IRAs in US, forfeit Roth conversion ladder, live on taxable investments until 59.5 years old, tax treatment is very simple as you only need to file in Canada (and maybe a very simple 1040NR if there is movement in your IRAs that year?).
- If you take the US citizenship, keep taxable account in US; since you'll be early retired you'll have low income comprised mostly of dividends/interests from that account, then file 1040 to declare your non-existent worldwide income and benefit from the standard deduction, should pay 0 or negligible taxes (if other Canada income can always file 1040NR?), and in Canada claim FTC on US dividends. More complicated since you need for file 2 returns each year, you need separate accounting (cost basis) for each investment as deemed by US and Canada, and you'll be limited in your Canadian investments unless you want to file PFIC/FATCA paperwork.
Summary:
Pros of US citizenship:
- Simpler if you want to keep taxable investments in the US. I wanted this at first, but there are now some new great low(ish)-fee brokers for ETFs/MFs in Canada that make this a non-issue, IMO.
- Simpler to come back in the US to live long-term, work, start a business, or be self-employed. Contrarily to the GC, can come back any time even a prolonged absence, which is nice. However, in my field it's relatively easy to get a TN visa pretty quickly, so I'm not too worried about that if I want to tap US employment opportunities in the future. Self-employment doesn't have to be done in the US.
- (Maybe) simpler if you want to tour the world digital-nomad style, by establishing your residence in a no-tax state, and getting lower tax than if Canada claimed you as a resident (due to no stronger ties elsewhere).
Pros of relinquishing GC:
- Simpler if living in Canada. Can use TN to come back to the US to work.
Overall I may do a few years (if at all) of Roth ladder conversions on the GC and tour the US for a while before relinquishing it, then moving my tax base to Canada, be self-employed there and in the worst case getting a TN visa to work in the US again. But then again, my traditional IRA is small compared to my taxable, so I'll probably be able to survive on taxable money until I'm 59.5, so I see little need to the Roth ladder. Taxable investments will be great in Canada and the whole situation will be greatly simplified.
I'm in a similar situation to you: Canadian citizen on green card, with investments at Vanguard (IRA, Roth IRA, and taxable), almost 40 SS credits and contemplating getting a US citizenship before leaving.
Your questions:
- Wiping out unrealized capital gains after moving to Canada: Seems possible for a non-covered expatriate if you sell after surrendering your GC and becoming a US non-resident (maybe the next year to be safe?).
- Roth conversion ladder: Like Nelsona said, not doable while a Canadian resident since Canada would not recognize the newly converted money.
- Protection of IRAs and SS without a US citizenship: Not worried about that.
My thoughts so far:
- The simplest strategy for life/investments by far is to stay in the US, leave investments in the US, Canada leaves you alone.
- If you want to go back to Canada, the simplest strategy is to relinquish GC, sell taxable (no tax on capital gains) and transfer it to Canada, use TFSA, keep traditional/Roth IRAs in US, forfeit Roth conversion ladder, live on taxable investments until 59.5 years old, tax treatment is very simple as you only need to file in Canada (and maybe a very simple 1040NR if there is movement in your IRAs that year?).
- If you take the US citizenship, keep taxable account in US; since you'll be early retired you'll have low income comprised mostly of dividends/interests from that account, then file 1040 to declare your non-existent worldwide income and benefit from the standard deduction, should pay 0 or negligible taxes (if other Canada income can always file 1040NR?), and in Canada claim FTC on US dividends. More complicated since you need for file 2 returns each year, you need separate accounting (cost basis) for each investment as deemed by US and Canada, and you'll be limited in your Canadian investments unless you want to file PFIC/FATCA paperwork.
Summary:
Pros of US citizenship:
- Simpler if you want to keep taxable investments in the US. I wanted this at first, but there are now some new great low(ish)-fee brokers for ETFs/MFs in Canada that make this a non-issue, IMO.
- Simpler to come back in the US to live long-term, work, start a business, or be self-employed. Contrarily to the GC, can come back any time even a prolonged absence, which is nice. However, in my field it's relatively easy to get a TN visa pretty quickly, so I'm not too worried about that if I want to tap US employment opportunities in the future. Self-employment doesn't have to be done in the US.
- (Maybe) simpler if you want to tour the world digital-nomad style, by establishing your residence in a no-tax state, and getting lower tax than if Canada claimed you as a resident (due to no stronger ties elsewhere).
Pros of relinquishing GC:
- Simpler if living in Canada. Can use TN to come back to the US to work.
Overall I may do a few years (if at all) of Roth ladder conversions on the GC and tour the US for a while before relinquishing it, then moving my tax base to Canada, be self-employed there and in the worst case getting a TN visa to work in the US again. But then again, my traditional IRA is small compared to my taxable, so I'll probably be able to survive on taxable money until I'm 59.5, so I see little need to the Roth ladder. Taxable investments will be great in Canada and the whole situation will be greatly simplified.