The Implications of Using a U.S. Address on Investment Accounts When Moving Abroad

Written by Carson Hamill CIM®, CRPC®, Associate Portfolio Manager and Assistant Branch Manager & Dean Moro BComm, CIM®, Associate Portfolio Manager

It is not uncommon to hear stories of people who have relocated from the U.S. to Canada being advised to use their old U.S. address, a U.S. PO box or even use a family member's address. However, there are risks associated with this approach. Many American expatriates living abroad have experienced restrictions or forced closures of their bank or brokerage accounts, causing significant stress. Prominent investment firms have been part of this emerging trend, which has become a frequent concern for expats. In this blog, we’ll review the issues to consider.

Real life scenario:

A relative of mine, who is a Canadian citizen, worked in the USA and had a 401(k) account. After leaving his employer, he decided it would be best to transfer his 401(k) to an IRA. Later, he made the choice to move back to Canada. When he notified the U.S. institution holding his IRA and investment account about his Canadian address, the U.S. financial institution informed him that as a resident of Canada, they could no longer service his accounts. He was advised he would need to move his assets to another firm. If not, the assets would be sold at their current market value and he would be sent a cheque for the proceeds and possibly incur tax consequences.

A firm’s decision to freeze, restrict or refuse service to non-U.S. resident is influenced by various factors, and fully at their discretion. The question then arises - Should you disclose your non-U.S. residential address to your investment institution?

Top issues to consider:

• Regulatory Compliance
• Tax Complications
• Account Restrictions and/or Closure
• You Move to Canada and Update Your Address – What’s Next?
• Working with a Cross-border Professional

Regulatory Compliance

As a Canadian resident, one of the key risks associated with using a U.S. address for your investment accounts is potential non-compliance with regulatory requirements. Financial firms must adhere to numerous regulations, including anti-money laundering measures, know-your-customer rules, and country-specific securities regulations. U.S. financial firms expose themselves to significant regulatory issues if they engage in business with clients residing outside of the United States when they are not licensed accordingly.

Tax Complications

As a U.S. citizen residing in Canada, you are required to comply with the tax laws of both countries. The Internal Revenue Service (IRS) requires accurate reporting of worldwide income, including investment gains and dividends. Maintaining a U.S. address on investment accounts may complicate matters when reporting your Canadian residency and income to the IRS. Likewise, the accounting for investment income is different in the United States versus Canada. You can learn more about this here. The end result is the potential for double taxation, penalties, and/or other tax-related complications.

Account Restrictions and/or Closure

Financial institutions have become increasingly cautious in their efforts to comply with regulations regarding non-resident clients. Many investment firms have begun restricting or even closing accounts associated with foreign addresses due to regulatory complexities. By maintaining a U.S. address on their investment accounts, U.S. persons residing in Canada risk account restrictions and/or sudden account closures. Not only could this complicate their investment strategies, but it can also lead to unforeseen tax consequences.

One of the main benefits of having your accurate and current non-U.S. address on your brokerage account is peace of mind.

You Move to Canada and Update Your Address – What’s Next?

Upon receiving notice of your non-U.S. address, many U.S. brokerage firms will provide notice to move those assets to an eligible firm. It is not uncommon to be given a deadline of 30, 60 or 90 days, and failure to move the account may result in the assets being sold at the current market value, with a check sent in the mail for the proceeds. This can potentially lead to significant tax consequences and/or penalties.

Click here to learn more about the various issues Americans need to navigate when residing in Canada.

Working with a Cross-border Professional

Navigating the complex rules and regulations can be challenging if you are an American expatriate residing in Canada or abroad. To ensure you make informed financial decisions, collaborate with a knowledgeable cross-border advisor who is up to date with current regulations in both the United States and Canada. They will work closely with your cross-border accounting professional and other advisors to ensure a unified approach.  

A dual licensed financial advisor will maintain a tax compliant diversified portfolio that is aligned with your goals and assist you in navigating the tax implications of being a U.S. person in Canada. This includes avoiding PFIC issues and providing you with detailed 1099B tax forms for accurate tax reporting.   

It’s important to establish a long-term partnership with a reputable firm that prioritizes your needs, provides ongoing support, and stays abreast of the evolving regulations. You can learn more here about the benefits of working with an experienced cross-border financial advisor.

Next Steps

If you’re planning on moving to Canada and need assistance with your investments, estate planning, and portfolio management, please call or email Snowbirds Wealth Management, as we specialize in cross-border financial planning and wealth management. We work closely with experienced cross-border lawyers and accountants to ensure you have a qualified team behind you.

About Snowbirds Wealth Management

Gerry Scott is a Portfolio Manager and founder of Snowbirds Wealth Management, an advisory firm focussed on the cross-border market. Together with Dean Moro and Carson Hamill, Associate Portfolio Managers with Snowbirds Wealth Management, they provide investment solutions for Americans living in Canada and Canadians residing in the United States. Licensed in both Canada and the U.S., they provide tailored investment solutions to minimize the tax burden when moving assets across borders.

To schedule an introductory call, please click here.    

Statistics and factual data and other information are from sources RJLU believes to be reliable but their accuracy cannot be guaranteed. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities nor is it meant to replace legal, accounting, taxation or other professional advice. We are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax-related matters. The information is furnished on the basis and understanding that RJLU is to be under no liability whatsoever in respect thereof.

Raymond James (USA) Ltd. advisors may only conduct business with residents of the states and/or jurisdictions in which they are properly registered. Investors outside the United States are subject to securities and tax regulations within their applicable jurisdictions that are not addressed on this site. Raymond James (USA) Ltd. is a member of FINRA/SIPC.

Sources:

https://harrisonbrook.com/can-american-expats-keep-an-old-address-on-their-us-brokerage-accounts/

https://www.rjlu.com/how-we-help/american-residents-of-canada