Author Topic: canadian citizenship and FIRE  (Read 2591 times)

doneby35

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canadian citizenship and FIRE
« on: August 25, 2017, 04:52:46 PM »
Has anyone from the states ever moved to canada?

My parents currently live in Canada and i'm a US citizen. Due to their medical needs, I want to explore moving there, however I wanted to see if anyone here has done it, what are the some of things that I would need to consider and how it affects FIRE.
1. Do i have to pay taxes both in the US and Canada?
2. Would I have comparable investment vehicles in canada for the 401k, IRA, HSA (what would I do with this if canada has a single payer system) and the taxable vanguard account that I currently have?
3. Would this affect FIRE in a negative way?

Thanks.

plainjane

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Re: canadian citizenship and FIRE
« Reply #1 on: August 25, 2017, 06:47:16 PM »
Yes. But you probably meant to ask whether anyone on the forum had made this move.

1. Probably not. You'd need to file taxes in both places, but Canadian taxes are generally higher, so you won't end up owing anything to the US after the first year.
2. Yes. Google RRSP (like a 401k except you can do it even if your employer doesn't offer a plan).  TFSAs are like Roth IRAs, but the tax situation means that you probably shouldn't open one if you came to Canada. We don't have HSA equivalents for obvious reasons. I have no idea what you would do with your existing investment vehicles. You'd probably want to talk to a cross border tax person.
3. It depends on too many factors. Where would you be living in Canada, some places are very expensive, some are not. What kind of job would you be able to get here? You do have an advantage of a more stable health system.

Also moving to Canada != Canadian citizenship.  My mother lived here for over 30 years before she became a citizen.

CanuckExpat

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Re: canadian citizenship and FIRE
« Reply #2 on: August 25, 2017, 11:43:12 PM »
Ditto most of what plainjane said, and cross border tax things are complicated. Your first question is can you move to Canada? You didn't mention being a Canadian citizen.

Canada taxes on residency, US taxes on citizenship (and residency), the interplay between the two is defined by the laws of both countries and the Canada US tax treaty. You probably won't ever be double taxed, but you won't have fun wrapping your head around it all.

Whether it will be positive or negative for you financially wise will depend on your personal situation.

GuitarStv

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Re: canadian citizenship and FIRE
« Reply #3 on: August 26, 2017, 08:12:35 AM »
If you want to retain your US citizenship, you will need to file US taxes every year . . . even if you owe nothing.  If you don't file your US taxes, you will be charged fees by the US government.  You should also be aware that if you are renouncing citizenship with assets of over 2 million dollars, (or if you made 145,000$ a year average over the last 5 years you were a US citizen) you will be charged an exit tax by the US government - your government won't let you go without their cut.  :P

Al1961

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Re: canadian citizenship and FIRE
« Reply #4 on: August 26, 2017, 10:43:04 AM »
And maybe study up on your reporting obligations under FATCA. Failure to disclose ANY foreign accounts you have an interest in exposes you to confiscatory penalties.
as noted above, don't try to open a TFSA (roughly like a Roth IRA, only way better) as the IRS considers it to be an illegal foreign trust.

Have you looked into Canada's points based immigration system, or various other programs? You may get points if you will be caring for infirm parents. Note that the younger you are the more points you can get. http://www.cic.gc.ca/english/immigrate/index.asp

CanuckExpat

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Re: canadian citizenship and FIRE
« Reply #5 on: August 26, 2017, 07:02:17 PM »
A couple of follow up points, I think it's a little bit of a broad brush to paint Canada as high tax and US as low tax. A lot has changed, and a lot is situation specific. The highest US federal marginal tax rate is now higher than the highest federal Canadian tax bracket. Provincial taxes are more uniform in Canada, and relatively high compared to many US states, so the overall tax burden is hard to compute: if you are coming from California or NY, I can imagine cases where you might pay equivalent or less in the Canada. Off the top of my head, I would say differences in salary, and some living costs, make a bigger difference. For certain fields, the compensation can be much higher in the US.

Regarding how the US treats citizens in Canada, maybe you all have experience on this topic, I've read references noting that:
"If you are treated as a resident of a foreign country under a tax treaty, you are treated as a nonresident alien in figuring your U.S. income tax. For purposes other than figuring your tax, you will be treated as a U.S. resident." I've seen it in passing, but never hear more about it.

So if you are an American living in Canada, and Canada claims you as a resident, does the Canada US tax treaty not let you then be treated as  nonresident alien in the US? Why does that cause problems with TFSA for example?

RetiredAt63

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Re: canadian citizenship and FIRE
« Reply #6 on: August 28, 2017, 07:44:27 AM »
Check to be sure you can live/work here before you start worrying about taxes.  I know someone who works for Citizenship and Immigration Canada (I live near Ottawa, I know lots of civil servants!) who said its not always as easy as Americans think it will be to move here. Check out the website posted earlier, and look at the timing (i.e. when during the year is the best time to apply).

plainjane

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Re: canadian citizenship and FIRE
« Reply #7 on: August 28, 2017, 08:35:33 AM »
So if you are an American living in Canada, and Canada claims you as a resident, does the Canada US tax treaty not let you then be treated as  nonresident alien in the US? Why does that cause problems with TFSA for example?

I am not an accountant, but my understanding is that the TFSA was created after the latest Canada US tax treaty stuff was done. So there is no official agreement on how to treat the TFSA in the US.  And the US looks at the gains in the TFSA and says "well nobody else is taxing the gains here, so they are fair game" and "why are you doing this, you must be trying to hide something in this offshore account". 

Unfortunately this is unlikely to be fixed in the near term, since somebody has decided that we need to renegotiate NAFTA and that is going to take everyone's attention.

Ditto to RetiredAt63 - somehow many USians always think that it is really easy to come to Canada. This is not the case, though you have a better chance with family members.

Novik

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Re: canadian citizenship and FIRE
« Reply #8 on: August 28, 2017, 08:42:02 AM »
The tax complications can be hellish (reporting and being barred from things more than actually paying a lot), but survivable with advance planning.

https://www.amazon.com/American-Canada-Real-Life-Financial-Insights/dp/1770410899

Read this book if you're serious about moving to Canada. It's a bit of an ad for the guy's consulting firm at a few points but still an excellent resource. I read it for the tax sections as I am already a dual citizen/Canadian resident, but there's loads more useful info if you're actually considering a cross-border move.


Also I love this way of explaining the TFSA issues:
I am not an accountant, but my understanding is that the TFSA was created after the latest Canada US tax treaty stuff was done. So there is no official agreement on how to treat the TFSA in the US.  And the US looks at the gains in the TFSA and says "well nobody else is taxing the gains here, so they are fair game" and "why are you doing this, you must be trying to hide something in this offshore account". 

Unfortunately this is unlikely to be fixed in the near term, since somebody has decided that we need to renegotiate NAFTA and that is going to take everyone's attention.


CanuckExpat

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Re: canadian citizenship and FIRE
« Reply #9 on: August 29, 2017, 11:23:52 PM »
Regarding how the US treats citizens in Canada, maybe you all have experience on this topic, I've read references noting that:
"If you are treated as a resident of a foreign country under a tax treaty, you are treated as a nonresident alien in figuring your U.S. income tax. For purposes other than figuring your tax, you will be treated as a U.S. resident." I've seen it in passing, but never hear more about it.

So if you are an American living in Canada, and Canada claims you as a resident, does the Canada US tax treaty not let you then be treated as  nonresident alien in the US? Why does that cause problems with TFSA for example?

The piece I might have been missing is the “Savings clause” of the treaty, which seems to allow the US to claim and tax US citizens as if the treaty didn't exist.

There might be an interesting out for someone who is a US resident, but not citizen, but ya, this is all complicated.

Novik

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Re: canadian citizenship and FIRE
« Reply #10 on: August 30, 2017, 11:43:18 AM »
Regarding how the US treats citizens in Canada, maybe you all have experience on this topic, I've read references noting that:
"If you are treated as a resident of a foreign country under a tax treaty, you are treated as a nonresident alien in figuring your U.S. income tax. For purposes other than figuring your tax, you will be treated as a U.S. resident." I've seen it in passing, but never hear more about it.

So if you are an American living in Canada, and Canada claims you as a resident, does the Canada US tax treaty not let you then be treated as  nonresident alien in the US? Why does that cause problems with TFSA for example?

The piece I might have been missing is the “Savings clause” of the treaty, which seems to allow the US to claim and tax US citizens as if the treaty didn't exist.

There might be an interesting out for someone who is a US resident, but not citizen, but ya, this is all complicated.

I'm not sure I understand what point you're getting at, but the basic principle is that the US and most countries tax all residents. The US also taxes all citizens. There are some IRS rules that allows exemptions for foreign income and some tax treaty provisions that let foreign tax be deductible or foreign retirement accounts be ignored, which mitigate problems. But the US still taxes citizens who have left the country (or indeed who have never lived there!) based on basically the same rules as residents, which include a whole pile of terrible rules around "foreign" accounts and holdings.

CanuckExpat

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Re: canadian citizenship and FIRE
« Reply #11 on: August 30, 2017, 06:58:09 PM »
I'm not sure I understand what point you're getting at, but the basic principle is that the US and most countries tax all residents. The US also taxes all citizens....But the US still taxes citizens who have left the country (or indeed who have never lived there!) based on basically the same rules as residents, which include a whole pile of terrible rules around "foreign" accounts and holdings.

It probably wasn't clear because I was figuring out as I went along:
In my first post, I was wondering what the basis in the US - Canada tax treaty was for the US being "able" to tax US citizens living in Canada as residents was, because:
1) IRS says if you can be claimed as a resident of another country due to tax treaty, you can be treated as a non-resident for US taxes
2) the Canada US tax treaty does have sections which would allow a US citizen living in Canada to be treated as a Canadian resident.

So in my first post, I was wondering based on the above two, why a US citizen living in Canada couldn't elect to be treated as non US resident (loose wording), which would avoid some of this problem with foreign (ie Canadian) income, etc.

Then later, I realized there is a further clause in the US Canada tax treaty, called the "savings clause", and that more or less lets the US get it's claws back into US citizens, even if Canada claims them as residents. The understanding of that clause was what I was missing in my first post, and what I mentioned in the second post.

The only other possibly relevant part, is that the "savings clause" applies to US citizens but it might have an "out" for US permanent residents (ie green card holders) living in Canada. But choosing that election, to be treated as non US residents by virtue of treaty, can have a whole lot of other implications, tax and not.

So essentially ignore me, but I learned a bit more about the Canada US tax treaty in the process.

And it seems, a lot of people (essentially US citizens living in other countries), think the savings clause is a bad deal, and their resident government (ie. Canada), should do a better job of negotiating tax treaties that protect their interest better... but the US probably throws it's weight around a lot to get the treaties it wants :)

Peony

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Re: canadian citizenship and FIRE
« Reply #12 on: August 30, 2017, 07:19:08 PM »
Posting to follow. I'm a U.S. citizen with Canadian permanent residency (became a Quebec immigrant after getting a B.A. from a Quebec university), currently dividing my time between the U.S. and Canada.