US to Canada Relocation: 5 Tax and Financial Planning Mistakes Americans Make

It was February of 2025 when I received a call from “Angela” (not her real name) inquiring about Transition Financial Advisors Group tax preparation services. Angela explained that she had accepted an executive position with the Canadian subsidiary of a US Fortune 500 firm and had moved up to Ontario from Michigan in May of 2024. Angela is divorced, has two grown children who live in the US, and has (simplified) assets as outlined below:

Angela's financial profile was substantial and varied. Her investment holdings included a brokerage account valued at U$3,327,000, a 401(k) worth U$1,500,000, a Rollover IRA of U$350,000, and a Roth IRA of U$200,000. On the real estate side, she owned a US principal residence valued at U$1,500,000 and a rental property held inside an LLC worth U$500,000. Rounding out her assets were a checking and savings balance of U$40,000 and a College Savings 529 Plan totaling U$120,000. Notably, Angela carried no debts.

Angela’s company had provided her with a moving company referral, a contact at a national bank for her banking/mortgage, a referral to a real estate agent to assist with a rental or purchase of a home, and C$1,000 to prepare both her US and Canadian tax returns for the first year. The company had paid its immigration attorneys on retainer to obtain her immigration status in Canada.

As I learned more about Angela’s financial situation, I discovered the asset summary above and the following key facts:

• She has a US “trust-centered” estate plan using a Revocable Living Trust
• Her brokerage account and house are both titled in the name of the trust
• She had a good year in the market and generated approximately U$300,000 in realized capital gains, interest, and dividends in her account from May 2024 until Dec. 31, 2024, when resident of Canada
• She has a rental property netting about U$10,000 per year in income inside a US LLC
• Angela has an adult son in California and an adult daughter in Michigan

As we have often seen in our 26 years working with families moving between Canada and the US, this lack of planning causes numerous problems that are difficult to rectify. I have simplified some of the examples below for clarity, understanding, and to illustrate the issues. Let’s delve into each one of them.

First, US Revocable Living Trusts are a great estate planning tool…in the US.

U.S. Revocable living trusts provide great disability planning, avoid probate, keep the estate private, and all income flows through to the beneficiary’s tax return to be taxed at the normal personal rates.

However, in Canada, trusts are taxed much differently in that the income must be passed through to the beneficiary each year to get the same treatment at the personal marginal rates. If all of the income is retained in the trust, Canada Revenue Agency (CRA) simply taxes all of the income starting at dollar one at the highest marginal rate in the province the trust is resident in.

For Angela, this meant U$300,000 was all taxed at Ontario’s highest marginal rate of 53.53 percent! A tax bill of U$160,590 at an exchange rate of 1.35 = C$216,797. Angela, of course, was shocked. There may still be some tax planning that can be done, depending on whether Angela already filed her T-1 personal return with the trust income, or whether a T-3 trust tax return was filed and how it was filed in Canada. Regardless, her tax prep bill is going to be much more than C$1,000 allocated by her employer.

The good thing is Angela gets a full “step-up” in basis when moving to Canada, so she is well-advised to distribute all of the assets in the trust out to her name alone to avoid this in the future. There is a “deemed disposition” for CRA purposes when assets are distributed out of the trust, and all the gains from the time of entry into Canada to the time of distribution would be taxable to Angela at normal Canadian rates. This includes all unrealized gains in her investment portfolio and her home from the point of entry.

Second, Angela made sure to change all of the addresses on her accounts in the US and had her mail forwarded to her address in Ontario.

What she didn’t realize in putting a Canadian address on her investment accounts is that her custodian “froze” her accounts, as she is now a resident of Canada, and they were not registered there. Her US investment advisor’s compliance department sent her a letter to move her brokerage off of their platform, or it would be sold and distributed because they are not registered to render investment advice to a Canadian resident and are afoul of Canadian securities regulations. As we are dually registered in both Canada and the US, we told her we can custody her IRAs here in the US, but her brokerage account will have to be moved to Canada. However, her brokerage account held a number of US-based mutual funds that cannot be transferred. She would have to sell them and move the cash up for reinvestment.

Third, Angela’s LLC, containing her rental property, causes problems as well.

In the US, using an LLC to insulate the liability of owning a rental property is a common risk mitigation strategy. Not only does it provide asset protection for the remainder of Angela’s assets (namely her brokerage account), but it is a flow-through entity for US tax purposes. This means any income generated by the rental property is taxed at the more favorable personal tax rates. However, from a Canadian tax standpoint, LLCs are considered corporations, and generally, a T-2 corporate tax return needs to be filed. However, we have a common cross-border “gotcha” here called a “mismatch of the foreign tax credits.”

In the US, Angela pays personal income tax on the net income passing through on her personal tax return. In Canada, the income flows through on a corporate tax return, and she pays corporate income tax on that same net income. As a result, a “double tax” situation is created because you cannot take a personal foreign tax credit against corporate tax owing. The personal taxes and corporate taxes are “stacked” on top of each other with no relief from double taxation. This mismatch can lead to 60-70% or higher of each dollar of income paid in taxes to both tax authorities.

Fourth, Angela was now concerned about how effective her current estate plan would be in Canada.

We clarified that estate planning documents like general/financial powers of attorney, healthcare powers of attorney, and healthcare directives are generally state and provincially specific. Without a Canadian estate plan, her powers of attorney may not be acknowledged at all. Her US Will would be entered into a Canadian court, but the provisions in it may or may not be acceptable in Canada.

Estate planning is all about how much control is wanted in a variety of situations, like disability, incapacity, and death. In our estate plan design discussions, Angela was comfortable leaving half of her estate outright to her daughter, who is married, has a child, and is stable. However, she is concerned about leaving the other half to her son, who has proven less responsible and can’t seem to launch into adulthood despite being 32 years old. We talked through assets that pass via law through a beneficiary (like an IRA, life insurance, or a “transfer on death” TOD account) and assets that pass via a Will.

Trusts are not a common estate planning tool in Canada, so we came up with a plan for her daughter’s assets to go outright to her, but her son’s assets would go into a trust in the US to be managed by a corporate trustee. Angela’s Canadian Will simply left her brokerage account in Canada to a US testamentary trust that was created with a coordinated US Will. She was pleased with the outcome.

Fifth, Angela didn’t realize that her College 529 plan in the US was fully taxable in Canada at the higher Canadian rates.

She had started it for her daughter’s children and wasn’t sure what she could do. We suggested she change the “ownership” or custodian duties to her daughter to avoid any tax in the account in Canada. Now, withdrawals for college expenses will remain tax-free in the US.

Overall, I hope this case study starts to highlight the value of pre-entry planning and why consulting with a good cross-border firm is well worth your while. It can pay off in taxes saved, other costs and fees avoided, and best of all, eliminate a lot of inconvenience.

About the Author

Brian Wruk is the founder of Transition Financial Advisors Group LLC, a fee-only wealth management firm specializing in Americans moving to Canada, now in its 26th year of business. Brian and his team put their clients' best interests at heart by taking a comprehensive view of each financial situation and building lifelong relationships based on trust. Over the years, they have helped numerous families successfully relocate to Canada, offering an end-to-end solution covering all aspects of one's financial life, including estate planning, Canadian and US tax planning and preparation, investment management in both countries, and retirement planning. This case study was drawn from their deep experience to illustrate the complexities that even a seemingly straightforward cross-border move can bring. 

Reach out to learn more about how Brian and his team can support you with a Canada-US financial advisor.