A recent visitor to Canadian Tax Resource asked an interesting cross-border question.
Question: I am moving to the US and have obtained a green card. When I sell my home in Canada and re-locate in the US will there be a tax on the funds brought into the US?
What follows is a general explanation of the implications but should not under any circumstance be considered tax advice. If this situation applies to you or if you are contemplating moving to the US you should seek professional advice before you take any action. A cross-border tax accountant can help structure your departure to minimize any unplanned surprises.
Canadian Tax Implications
Canada imposes an exit tax on persons who give up residency and is essentially a deemed disposition. This means that you will have been deemed to have sold all of your property just before you left Canada and any gains or income earned until that date is subject to Canadian tax. If the home in question was a principal residence (you currently live in the home), then there is an exclusion of the gain on the sale of home in Canada. Any other capital property will be treated as a sale and tax on capital gains and losses will be due up to the date of departure.
When leaving Canada, it is vitally important to property give up Canadian residency. Failure to give up residency in Canada may result in you being tax in Canada on your worldwide income and in the US on your worldwide income. And while there may be some protection under the Canada-US Tax Treaty it may result in some double taxation, headaches and money to appeal the CRA and IRS assessments. You should see the residency page on the CRA site here and perhaps consult a cross border tax professional before you leave. Doing so will reduce the likelihood of an unexpected issue arising.
US Tax Implications
While there are no taxes on monies brought into the US, it is important to be aware of the US tax issues if you are liable for US taxes.
If you have obtained a US green card you will be liable for US federal taxes on your worldwide income. Residency begins in the first calendar year in which the green card was obtained and you were present in the US for at least one day. This is referred to as the Lawful Permanent Resident Test and may complicate your situation if you have met this or any other residency test. In addition there may be complications if Canadian residency was extinguished at a different time that US residency began.
If you have met the US permanent resident test and the Canadian residency test and sold the home you may qualify for the principal residence exclusion in Canada but be liable for the gain in the US if you did not qualify under the ownership and use rule. If on the other hand, you had a home in the US and in Canada and have already moved into the US residence, your Canadian property would no longer qualify for the exclusion and would be subject to the tax on capital gains.
It is important to understand that professional advice from a cross-border specialist can help arrange your departure to minimize the tax consequences.