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Part 2: Preparing to Exit the United States for Canada?

By John McCord, Cardinal Point Wealth Management
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It is important to plan ahead when exiting the U.S. for Canada. Failing to do so can be costly both in terms time and money. Aside from the logistics of a move, one must also consider retirement planning, deferred compensation arrangements, currency conversion, the Canada U.S. Tax Treaty, insurance needs and estate planning. Deferred compensation arrangements and currency conversion are discussed below.

We are often consulted about U.S. based deferred compensation plans that are payable to individuals who are moving to or returning to Canada. Examples of these arrangements are stock option and company bonuses. The income from these plans are frequently remitted prior to a Canadian move, which results in taxation at Internal Revenue Service (IRS) rates. Once a transition has taken place, the aforementioned income streams will be taxed at higher Canadian Revenue Agency (CRA) rates. Canadians who are returning to Canada should consider remaining in the U.S. until their deferred compensation plans are paid to take advantage of the lower IRS income tax rates. The tax savings can be significant. Employing an experienced transitional team will help mitigate higher tax rates and the risks of double taxation.

The process of converting currency can be overwhelming for those without experience. Foreign -exchange (Forex) is a decentralized market for world currency exchange. The spot rate for any given currency is the current exchange rate for another currency. Although informative, the spot rates can be deceiving. Banks, currency brokers and credit card companies often add fees and markups to the spot rate upon conversion. Unfortunately, charges can be significant and it is important to understand the total cost of a conversion prior to executing a transaction. We recommend that individuals do not exclusively utilize their current financial institution to perform currency conversions. Further, one should take the time to speak to numerous providers and compare markups and fees.  

In like manner, the relationship between the Canadian and U.S. dollar is volatile and unpredictable. Accurately forecasting a currencies direction is very difficult to do and is often a losing proposition. Attempting to "time" a currency conversion is not recommended. One strategy that mitigates risk for a U.S. domiciled individual is to convert currency in phases well before returning to Canada. This technique reduces the risk of the U.S. dollar depreciating against the Canadian dollar. Clearly, managing currency risk is an important component of any cross border financial planning process.

There is no "one size fits all" cross-border financial planning strategy. Therefore, it is important to partner with a qualified team of tax, legal and investment professionals who specialize in Canadian and United States cross-border transitioning and asset management. Stay tuned for part three of "Exiting the U.S. for Canada?" or contact Cardinal Point Wealth Management at http://www.cardinalpointwealth.com/US/contactus.html to review your unique situation.

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