BNN: The Street – Cross border tax planning for Canadians living in the US

We are very pleased to share that our President and CEO was recently interviewed by BNN for their “The Street” segment, which aired November 6, 2024 following the recent US election. BNN looked to Matt Altro as a Cross Border Financial Planner for his insight into estate tax planning, investing and capital gains changes for Canadian-Americans.

Below is a transcript of the interview which aired live on November 6, 2024 on BNN.

Paul: Given the result of last night and taxes for Canadians who may be traveling to the United States or may in fact have dual-citizenship we are joined now by Matt Altro president and Chief Executive Officer of MCA Cross Border Advisors. Matt, thanks a lot for joining us, I know from some notes that you have shared with us that you were like everybody else watching last night with interest at the outcome. We know the outcome now, it is a Trump and Republican sweep. And one thing you were watching very closely was the US estate tax. If I understand correctly your view was that a Kamala Harris Democratic sweep would have had significant implications for the lifetime exemption on the estate tax. What is you view now that it is clear that it is a Trump Republican win.

Matt: Great question Paul. Well you know there is a lot of people that can let out a big sigh of relief because the US estate tax was at the top of the list when it comes to the impact to this. Remember, US estate tax is like a death tax, so ultimately when you pass away in the US and you have assets over the exemption then you have to pay a tax of up to 40% when you pass away. That is a significant bill. Now, when Trump came into power he doubled the exemption, the exemption is now 13.6 million. However, that provision was supposed to sunset as of January 1, 2026 and if nothing happens in the law, that’s in fact what’s going to happened. Catching many many many more Americans into the US estate tax net. So now that we know, we know something now Paul, we know that it looks like we got Trump in power and it looks like the republicans are going to get control of both the Senate and the House. So Trump has campaigned that he is going to make these tax cuts permanent. So, in fact that means that the exemption will not probably drop back down and a lot of planning that Americans were doing to transfer assets out of their estate is no longer necessary. So, you know ultimately that’s one major factor. Now this also could affect Canadians, right, because the rule for Canadians who have just US assets is that if your assets, your US assets are over $60,000 but your worldwide is over the exemption you might also have US estate tax on your US assets. So that’s you know a US property, or US stocks in your name personally. So estate tax planning still could exist because, ultimately you could be over those numbers. Planning should be done, maybe transfer your US property to an irrevocable trust. Maybe your US shares of stock, all those advisors listening out there, US shares of stock could expose Canadians to US estate tax. Good solution? Transfer assets to a Canadian hold co. You no longer own US shares of stock in your name personally. You own shares of a Canadian holding company which owns US shares of stock. So, ultimately very interesting results.

Barry: Hey Matt, we’ve seen a number of our clients there children adult children moving to the US taking jobs in the US, and they may have TFSA’s, they may have RESP’s, First Home Savings Accounts, what should people think about there if their children are moving to the US for jobs and becoming non-residents for example?

Matt: Yeah, got a lot of clients get a job and maybe in California for tech or their doctors moving there. Ultimately, the Canadian US tax systems are so different, you know a TFSA which is a no brainer for a Canadian, the IRS doesn’t like the TFSA. It ultimately doesn’t give it the tax-free nature that you would get as a Canadian. So American, if you move to the US and you have a TFSA you probably need to sell it. You need to liquidate it before you move, because even the IRS may consider it a foreign trust which is a complicated concept as well. If you have RESP’s tricky, you know people are saving for their education that one, you know, you probably if your kids are no longer Canadian residents, you can’t leverage the benefits of an RESP. So, you might want to wait and see there but do not contribute once you are a US person. The big one that’s interesting is the RRSP. You can keep your RRSP if you move to the US, but, here’s the big win. Canada’s much nicer to a non-resident than they are to their own residents when it comes to RSP planning. We put money in RRSP and we get a deduction, it grows tax deferred, but when you take the money out you know as a Canadian we pay a pretty high rate of tax, maybe up to 54%, Canada’s much nicer when you’re a non-resident instead of the 53%, Canadians who move to the US can pay 25% or even 15% if you’ve got a couple million in your RRSP, that’s looking like an $800,000 savings to your retirement nest egg.

Paul: Wow, that’s great insight Matt. What about US citizens living in Canada, some of our viewers no doubt fall into that category there’s about a million US citizens living in Canada what should they be thinking about?

Matt: Great point, yeah, again US citizens in Canada not only should they not do the TFSA but the RRSP planning is tricky because the US doesn’t give the deduction on the RRSP and I’ll tell you there’s just so many income tax traps out there and when you don’t get a deduction on the US side well, is that gonna to work? Well, I’ll tell you usually it does because in Canada you get a deduction and in the US you don’t but because the Canadians tax so much higher on the RRSP you’re likely still to benefit from that. But if you’re a US Citizen in Canada there’s also other rules. The IRS taxes capital gains differently do you know that there’s a difference between a short-term and a long-term capital gain in the US? Canadian advisors also don’t realize this often, that if you sell an asset and you’re a US person and you’ve held it less than one year you don’t get the preferential capital gain rate in the IRS view. So you gotta be careful to make sure that your timing your sales at the right time for year end planning and also just making sure that you’re looking at cost basis for both countries because the US cost basis for when you sell stock could be different than the Canadian so that’s also a tricky one.

Paul: Ok we’re out of time but were gonna squeeze one more question in, Barry Schwartz has got a topic he really wants to put a question to you we need Barry to ask the question quickly and we need you to answer fairly quickly Matt

Barry: What’s going on with the capital gains change in Canada, is this happening?

Matt: Well yeah, the capital gains change looks like its definitely a done deal. 67% inclusion rate, I’ll tell yah I’ve got a lot of calls for Canadians who wanted to move to the US and still do because of this higher rate of tax and I’ll ultimately, you know that means is that you potentially if your gonna exit you gotta departure tax that’s coming but there is a lot of planning that you can do to avoid departure tax. Defer the departure tax, planning to deal with the departure tax, reduce it so you know, definitely come and discuss it because there’s a lot of interesting planning that we can do in advance.

Paul: Matt, thank you very much for this conversation. That’s Matt Altro president and chief executive officer of MCA Cross Border Advisors

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