USA Professionals Moving to Canada: Navigating the Non-Registered Investment Account Maze
Written by Carson Hamill CIM®, CRPC®, Associate Financial Advisor & Assistant Branch Manager & Dean Moro BComm, CIM®, Financial Advisor & Associate Portfolio Manager
Moving to another country is like exploring a vast, uncharted wilderness: there are many paths to navigate, some obscure and challenging, and it's easy to get lost. However, unlike the adventure of wilderness exploration, moving across borders involves deciphering the complexities of non-registered investment accounts, a task that demands careful navigation and informed decision-making.
Imagine this. You’ve spent years diligently saving, carefully investing, watching your nest egg grow like a well-tended garden. Now, you’re packing up your life and moving to Canada. You’ve got enough on your plate with the logistics of the move, but lurking in the back of your mind is the worry about your financial assets. Specifically, what on Earth are you supposed to do with your non-registered investment account?
The Problem
Non-registered investment accounts pose a considerable challenge when moving between the U.S. and Canada. After relocating, you cannot operate the account from the other country. If the account remains in the U.S., it usually freezes and limits you to sell-only transactions. U.S. financial advisors often suggest transferring these accounts to a cross-border financial advisor in Canada because the account freezes and restricts transactions upon disclosure of your new Canadian address. This is more than just an inconvenience; it can lead to substantial financial complications.
Picture this scenario: you’ve got a loyal dog named Max. Max is your pride and joy, a furry bundle of unconditional love. Now, imagine moving to Canada and leaving Max at home. Sure, you technically still own him, but without someone to feed him, walk him, and give him belly rubs, Max isn’t going to thrive. This is your non-registered investment account, left to languish in the U.S. without proper care.
Now, before you start envisioning a life of financial ruin or a neglected dog, there is a silver lining. Enter the cross-border financial advisor, the unsung hero of this tale. These wizards of finance specialize in managing investments for those brave enough to straddle two countries. They ensure your account is properly serviced and rebalanced through various economic cycles and life stages.
Mutual Funds Crossing the Border
Let’s zoom in on mutual funds for a moment. If you have even a hint of an idea about moving to Canada, holding mutual funds in your non-registered account is not the best strategy compared to holding other investment types. Here’s why: mutual funds are domestic creatures. They don’t adapt well to new environments and can’t be transferred across borders compared to other investment types.
Adding another layer of complexity, if you move to Canada and want your account registered at your new address to ensure it can be rebalanced and responsive to economic and market conditions, you will need to sell those mutual funds. If there is a capital gain, it will be realized and taxed in that year. Ouch.
Let me paint a clearer picture. You’ve been a disciplined investor, watching your non-registered investment account grow from $100K to $200K. That’s a tidy sum and you’d want to be strategic about selling off those capital gains through the years. Now, if your account is stuffed with mutual funds and you move to Canada, you’re left with two choices:
- Leave the account where it is, but risk it being under-serviced, frozen, and restricted to sells only. Not being adjusted for economic and market conditions.
- Sell the mutual funds, realize the capital gains or losses, and work with a cross-border financial advisor to reinvest the account properly, whether you stay in Canada or eventually move back to the USA.
It’s like deciding between skating on thin ice or taking the longer path around the frozen lake. Neither choice is convenient, but one clearly leads to a safer outcome.
Example
One particularly harrowing tale comes to mind. There was this young professional named Jim, an ambitious software developer with dreams bigger than the Grand Canyon. Jim had meticulously built his investment portfolio over the years. When his company offered him a promotion and a transfer to their Canadian office, he jumped at the chance. Jim, however, didn’t consider or know of the implications for his non-registered investment account. Once he disclosed his new Canadian address, his account was frozen, restricted to sells only, like a car stuck in first gear on a highway. His mutual funds were now more of a financial ball and chain than the golden goose they once were.
After a few stressful months balancing his new job and navigating his frozen account, Jim found a solution with a cross-border financial advisor. This advisor helped him strategically sell his mutual funds, manage capital gains or losses, and reinvest his funds to support his new life in Canada, while also keeping investment options open for a potential return to the USA.
Conclusion
The moral of the story? Moving to a new country is stressful enough without the added headache of a frozen investment account. Do yourself a favour and consult with a cross-border financial advisor before you pack your bags. It might just be the difference between a seamless transition and a financial nightmare.
So, while the maze of non-registered investment accounts can seem like a daunting labyrinth, remember there’s always a way through. With the right advice and a bit of foresight, you can navigate the twists and turns with confidence. And who knows? You might even find a few unexpected opportunities along the way.
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.
