Moved to the US (WA). Want to transfer my assets in kind. Tax implication?

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BobTheOtter
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Moved to the US (WA). Want to transfer my assets in kind. Tax implication?

Post by BobTheOtter »

Bonjour!

I have recently moved from to the US (WA). Before leaving Canada earlier this year, I closed my TFSA, paid out my HBP and dissolved my corp (to simplify cross border accounting). The only thing I left behind is an open account at a brokerage with a five-figure US dollar ETF portfolio. Now that I'm a non-resident, dividend distributions are subjected to the withholding tax, and overall money management is a pain. I have recently opened a brokerage account in the US and would like to consolidate everything I own in one place.

I am happy with my holdings and see no point in selling them for the sole purpose of transfer. Therefore I'm considering moving my portfolio in-kind. I did my research and could not find any information about the tax implications of such move. Is there anything I'm missing?

TLDR:
A Canadian, non-resident of Canada, resident of US, WA transfers a five-figure USD ETF portfolio held in an open (non-resigtered) account from a Canadian to US institution in kind. Any tax implications?

Thank you!
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AltaRed
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Re: Moved to the US (WA). Want to transfer my assets in kind. Tax implication?

Post by AltaRed »

Welcome to FWF! Firstly, I assume you are aware that if you left Canada 'permanently' to become a non-resident, you will have to pay cap gains taxes on all your non-registered investments (US ETFs) based on the market prices on the day you left Canada on your 'final' Canadian T1 General. That is because you will have a 'deemed disposition' of your non-registered holdings... even if you did not actually sell them. If effect, you have sold them and bought them back at a new ACB on the day you left Canada.

It would have been better to have sold them before leaving Canada and starting fresh with a US brokerage. If you sell now, as a resident of the USA, you may well be double taxed on cap gains as you will be subject to cap gains tax by Uncle Sam...unless you can declare a new ACB for these holdings based on the market prices for these ETFs when you entered the USA. I am not familiar with US tax law.

I am not aware of the ease of which to transfer holdings between a Canadian brokerage and a US brokerage. I suspect it is difficult and potentially costly with service charges. That said, if you were with TD Direct Investing and you open a TD Ameritrade account in the USA, you might have an easier time of it. This issue has been discussed before in this forum, but I did not try and do a Search for these threads.

When you say you only have US ETFs in your Canadian non-registered account, I assume you mean US domiciled ETFs and not Canadian domciled ETFs. If the latter, these are considered PFICs by US tax law and it is a nightmare to handle the reporting paperwork for these. IOW, you don't want to hold them.
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scorpionman
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Re: Moved to the US (WA). Want to transfer my assets in kind. Tax implication?

Post by scorpionman »

1. It works if the broker is the same in both countries they can do an inter-company transfer. The only one I know is IB.
2. It is not necessarily the case you must pay exit tax if the sums are below $100,000 in unrealized gains. I have no idea how they could possibly track that you've disposed of them later and to collect the $14,000 or so in tax due. Honour system? If the amount is above $100k, you either have to pay tax and find the money to pay it without selling your stocks or post security. From what I understand, posting security on a brokerage account is most likely impossible.
3. Leave either when gains are low or when you feel they are overvalued.
4. If you have an RRSP space, you can try to contribute in the year of departure to do away with the exit tax in part. I am not sure about the timing but I imagine that deemed disposition gains are still able to be offset by RRSP contribution if done before the date of non-residency is established? Again timing seems to be of the utmost importance.
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