CROSS BORDER WEALTH SPECIALISTS: tax & estate planning

TOP 5 WAYS WE HELP CLIENTS WITH CROSS BORDER TAX & ESTATE PLANNING:

KEEP YOUR 401(K)/IRA ACTIVELY MANAGED IN CANADA

When moving to Canada, a change of address typically prohibits your existing advisor from dealing with you. This results in your accounts being frozen and sometimes they will even ask you to liquidate your accounts, creating a massive tax hit. However, there is a solution. If you rollover your account into a Rollover IRA, it can be actively managed from Canada. This is effective for your 401(k) or other employer sponsored retirement plans, such as a 403(b).

This rollover is the only option available that transfers your assets on a tax-neutral basis. Once landed with Aspira Wealth, your account can continue to be managed and invested in a manner that is in line with your objectives. If you primarily invest in U.S. securities and want to keep both the holdings and any dividends in USD currency, this will be essential to avoid costly conversion fees and unfavorable foreign exchange rates.

INHERITING AN IRA IN CANADA - A GREAT ESTATE PLANNING TOOL

Inheriting an IRA is a tax-free rollover for both Canadian and U.S. tax purposes. Unlike the value of an RRSP or RRIF account, the IRA account is not included as income upon your death.

Additionally, your designated beneficiaries will inherit your IRA with its tax-deferred status intact. If your spouse inherits your IRA, this tax-deferred status will continue even after their death, to their beneficiaries. This is unlike Canadian RRSPs and RRIFs, which lose their tax-deferred status upon the death of the last surviving spouse. As your beneficiary, your spouse can draw the IRA minimum withdrawals over their lifetime, extending the tax-deferred growth of the account. This same system applies if your beneficiary is classified as an Eligible Designated Beneficiary (EDB). As an EDB, your beneficiary must meet the IRS’s definition of disabled or chronically ill.

If your adult children are your beneficiaries and do not qualify as EBD, they can draw as much as they want from the IRA over a period of up to ten years. They have the flexibility to plan strategic withdrawals in low-income years to minimize their income tax. If you pass before you begin withdrawing the required minimums, your adult children beneficiaries could let the account grow for the ten-year maximum period, until it is time to withdraw the entire amount in the tenth year.

MANAGE IRS LONG-TERM & SHORT-TERM CAPITAL GAINS TAX

The IRS categorizes capital gains into short-term and long-term, which are taxed at different rates. In comparison, the CRA currently taxes all capital gains at the same set rates, regardless of the length of time held.

The IRS considers short-term gains as any position that has been held for less than 12 months. These short-term gains are taxed at normal income tax rates in the U.S.. Alternatively, the IRS considers long-term gains to be positions that have been held for longer than 12 months. These gains are taxed at the long-term capital gain rate, which is up to 20%.

Monitoring acquisition dates of stocks, as well as potential sale dates, can have major impacts on your tax bill. That’s why we work with you to provide guidance, advice, and reporting through Form 1099-B, to simplify the process. Form 1099-B easily breaks down your short-term and long-term capital gains, so your cross-border tax accountant can easily file with you. We do recommend seeking professional tax advice as it relates to your unique dual-tax implications.

CORRECT WILLS TO AVOID CLEARANCE DELAYS WITH U.S. & CANADIAN ASSETS

Generally, it works best to have a separate will in each country that deals specifically and exclusively with the assets in each respective country. This ensures that the asset is dealt with correctly and that the will is valid under each country’s succession laws.

We are adamant about actually reading your wills. All too often a client thinks it says one thing, and it actually says another. From a cross border perspective, we have walked with families that have come to us in the midst of trying to manage their late spouse’s estate that is caught up in Canadian and U.S. clearance because the will was not acceptable to both jurisdictions. This can take years to resolve and can have a great effect on the estate’s financial management, and on the surviving family’s stress.

MEET CROSS BORDER TAX FILING REQUIREMENTS

FBAR filing and reporting (Foreign Bank and Financial Account) applies when at least one financial account is located outside of the United States and the aggregate value of these forging accounts exceeds $10,000 USD at any time during the calendar year. These accounts include bank accounts, brokerage accounts, mutual funds, or financial interest in a certain type of account (corporations, partnerships, limited liability companies (LLC), trusts, and estates). The deadline to file any annual FBARs is the regular IRS filing deadline of April 15th, however you are allowed an automatic extension to October 15th if you need more time.

The Passive Foreign Investment Companies (PFICs) rules are designed to prevent U.S. taxpayers from deferring tax on passive income earned through non-U.S. companies. Investments like Canadian mutual funds, Canadian exchange traded funds (ETFs), or Canadian income trusts, such as real estate investment trusts (REITs), are classified as PFICs to the IRS. The rule exists because the IRS did not want taxpayers investing in PFICs and paying less tax.

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