Tax Considerations for Green Card Holders

US Green Card holders enjoy permanent residency status in the US. From an immigration perspective, it may be difficult to retain your Green Card after establishing Canadian residency. From a tax perspective, there are many complications that result from retaining your Green Card as a Canadian tax resident.

First, Green Card holders who live in Canada as Canadian tax residents still need to comply with all US tax filing and reporting requirements.

Second, Canadian tax residents who retain their Green Cards are often caught in cross-border tax traps as they are considered “US persons” in the eyes of the IRS.

Moreover, those who move to Canada and relinquish their Green Cards receive a capital gains tax break. Upon entering Canada, Americans receive a tax-free bump-up on the cost basis of all their assets. This bump-up facilitates a lower capital gains tax in Canada when assets are eventually sold. The US does not generally impose an expatriation tax, so Americans moving to Canada who surrender their Green Cards receive a significant capital gains tax advantage: they avoid paying US capital gains tax on their assets, and they benefit from the bump-up on the Canadian side.

Each client’s situation is different, however. Not all American retirees moving to Canada will want to give up their permanent residency status in the US. Ideally, Green Card holders moving to Canada for retirement should work with a cross-border financial planner to weigh the pros and cons of retaining their Green Cards north of the border.