While 'move to Canada' searches increased after the U.S. presidential election, some clients may be eyeing more favourable U.S. tax rates.Steven_Kriemadis/iStockPhoto / Getty Images
In the aftermath of the U.S. presidential election, some cross-border clients are considering a move or weighing their financial options in the face of anticipated U.S. tax changes.
President-elect Donald Trump is expected to extend the broad tax cuts that commenced in 2017 and were set to expire at the end of 2025. For example, the U.S. lifetime gift tax exemption was set to revert to around US$7-million on Jan. 1, 2026 – roughly half of 2024’s US$13.61-million exemption amount. (In 2025, the amount will increase to US$13.99-million.)
If the amount doesn’t sunset, clients will be ecstatic, says Kris Rossignoli, cross-border tax and financial planner at Cardinal Point Capital Management ULC in New York.
He had been working with clients on estate planning strategies to take advantage of the higher lifetime threshold while it was in place. But now those strategies will likely not be necessary, or the planning can be pushed back rather than rushed to be implemented before Jan. 1, 2026, he says.
Federal income taxes are another consideration. As part of the 2017 tax cuts, the top marginal federal income tax rate was reduced to 37 per cent but is set to return to 39.6 per cent in 2026. If the tax cuts are extended, the increase won’t happen.
Mr. Rossignoli notes that some of his clients were planning to take more income in 2025 to avoid paying an additional 2.6 per cent in taxes.
“Now that thinking is, ‘Let’s defer that income tax if tax rates are going to be the same for the future,’” he says.
Other U.S. clients, mainly couples in which one spouse is Canadian, are expressing interest in returning to Canada, Mr. Rossignoli says. Searches such as “Canada work visa” or “move to Canada” started surging hours after the U.S. election results, according to Google Trends.
Moving is seamless for dual citizens, from an immigration standpoint, but there may be financial implications, Mr. Rossignoli says, pointing to a client who wants to leave the U.S.
“We then have to consider both Canadian and U.S. implications on every financial decision she makes,” he says, as the client would need to file an annual tax return in both countries.
U.S. citizens who aren’t also Canadian citizens need a sponsor and/or a work visa to move north of the border. A Canadian spouse can sponsor a U.S. spouse for permanent residency.
Carson Hamill, associate portfolio manager with Snowbirds Wealth Management at Raymond James Ltd. in Coquitlam, B.C., has some clients who wonder if they should expedite their plans to return to Canada. He tells them the decision needs to be grounded in more than short-term reactions to political changes.
“Uprooting your life and moving internationally involves legal, tax and immigration considerations that can quickly become overwhelming,” he says. “There are tax implications on both sides of the border, potential changes in health care coverage, the need to establish a new home base, and the necessity of securing legal residency status in Canada. Additionally, moving back could affect retirement plans and investment portfolios.”
Escaping higher Canadian taxes
Conversely, Mr. Rossignoli has clients in Canada who want to return to the U.S. He says these clients aren’t happy with Canada’s recent increase to the capital gains inclusion rate, to 66.67 per cent from 50 per cent on gains of more than $250,000 a year for individual taxpayers or on all gains for corporate taxpayers. Mr. Trump’s planned tax cuts appeal to them.
However, some clients may not realize that leaving Canada means paying a departure tax. Matt Altro, president and chief executive officer at MCA Cross Border Advisors Inc. in Montreal, calls the departure tax “a capital gains tax in disguise” as most assets – with the exception of real estate and registered accounts – are deemed sold.
Withdrawing money from a registered retirement savings plan (RRSP) may present one advantage for Canadians who move to the U.S. Mr. Altro says non-residents can withdraw funds from their RRSPs at much lower tax rates than if they stayed in Canada.
As non-residents have mostly severed ties with Canada, he says, the Canada Revenue Agency simplifies the tax situation by applying a flat withholding rate of 25 per cent on RRSP withdrawals, or less with advanced planning.
“Canada is nicer to non-residents than residents,” he says. “Wealthy clients in Ontario could pay as high as 54 per cent to withdraw and stay in Canada but non-residents can get the funds out at 25 per cent or even 15 per cent. That’s like adding 40 per cent to your retirement nest egg.”
Given this tax difference, Mr. Altro works with clients who have unused contribution room and may want to consider topping up their RRSP. (Canadians living in the U.S. with no Canadian income can only contribute to an RRSP if they have unused contribution room from previous years.)
While a tax-free savings account (TFSA) is exempt from Canadian departure tax, the account can create tax issues on the U.S. side, he says. The TFSA’s tax-free status doesn’t apply to U.S. residents, so any income earned annually is taxable by the Internal Revenue Service (IRS).
“You may have created a potential filing for a foreign trust,” Mr. Altro says, noting those trusts require complicated annual filings.
He says while most of the cross-border community believes the IRS wouldn’t consider TFSAs a foreign trust, a risk still exists since the IRS has yet to provide a position on the issue.