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Health, tax and RRSPs all affected by transition
EDMONTON - Don't move to the United States before planning your legal, health-care and tax strategy, says Brian Wruk, a Canada-U.S. transition planner.
"We have a similar culture, currency and consumer goods so a lot of people think that moving there is like moving to Saskatchewan -- but it's a whole different country," says Wruk, who moved from Alberta to Arizona in 1996.
Most new migrants know that they need some form of visa or citizenship. But some Canadians who previously worked in the United States assume that their green card will ensure their easy return, any time. In fact, if they have not continued to file U.S. tax returns, their green cards may no longer be valid, Wruk says.
He urges migrants to arrange health-care coverage before moving because their Canadian coverage will expire and the U.S. does not have universal health-care coverage.
"Typically, you get group coverage if you join a big company," Wruk says. "Or you can buy an individual policy."
But that might be difficult to arrange if you have an existing medical condition.
"In some states, there are subsidized pools of high-risk clients," Wruk says. So you should choose your state of residence according to more than just weather.
When you exit Canada, you must pay capital gains taxes on the "deemed disposition" of certain assets including stocks, bonds, income trusts, mutual funds and foreign real estate. This can accelerate a tax payment that you otherwise would pay later. And, if you don't actually sell those assets, it could leave you scrambling for cash.
Many Canadians hold most of their investments inside RRSPs or RRIFs, where annual investment earnings are not taxed.
In the U.S., "your RRSPs do not automatically maintain their tax-free status," Wruk says.
"That's a huge 'gotcha' for many Canadians."
The Canada-U.S. Tax Treaty does let former Canadian residents apply to defer the U.S. federal income tax on RRSPs.
Some states also allow the deferral of state income tax -- but others do not.
Most retired couples will pay less tax in the U.S. than in Canada, Wruk says. But employees, especially in states with state income taxes, may pay more in income taxes, payroll taxes for Social Security and Medicare (which covers retired and disabled people), than they would pay in Canada in income taxes, CPP and EI contributions, and health-care premiums.
"I never recommend that people move to the U. S. just to save taxes," Wruk says. "It should be based on lifestyle or a job opportunity."
His book, The Canadian in America: Real-Life Tax and Financial Insights into Moving and Living in the U.S., written with Terry Ritchie, is published by ECW Press and is sold in Chapters stores and at Wruk's website, www.transitionfinancial.com.
During the next year, Wruk will publish The Canadian Snowbird in America, and The American in Canada.
rchalmers@thejournal.canwest.com
