Understanding the Top 3 Tax Problems Americans Face When Moving to Canada

With over 10,000 U.S. residents immigrating to Canada in 2019, the numbers have been skyrocketing ever since through Canada’s Express Entry system. While jobs, property, and livelihood are important factors to consider, tax is often forgotten. Here are some common tax problems Americans face when moving up north: 

1.Tax Residency

When people move to Canada, they tend to stop filing their U.S. tax returns. However, even if a person resides outside the country, they are required to continue filing requirements with the Internal Revenue Service (IRS). The U.S. bases taxes on citizenship instead of residency. So, if you’re a Green Card holder or a U.S. citizen who’s migrating to Canada, you’ll still be required to fill U.S. tax returns along with declaring your worldwide income. After becoming a permanent resident of Canada, you’ll be taxed by the CRA based on your residency and will require you to declare your worldwide income again. In short, you’ll be taxed in both countries!
However, if the tax burdens and compliance surpass the benefits of the U.S. citizenship, you can renounce it. 

2.U.S. Social Security and Canada Pension Plan

The U.S. Social Security system, Medicare tax (FICA) and Canada Pension Plan are government-mandated mandatory social security/pension programs. Both these plans provide survivor, disability, and retirement benefits. 

You should know that the U.S. Social Security cost is comparatively higher, resulting in increased benefits. The current tax rate for social security is 6.2%, and Medicare is 1.45%. If an employee’s weekly taxable wages are $500, they will contribute $500.00 x 6.2% = $31.00 towards social security. Similarly, their Medicare contribution would be $500.00 x 1.45%= $7.25. 

Comparing both programs, CPP is more flexible as it reduces your investment in either program, and you can utilize the savings according to your will. You can also put additional money in your savings plan. 

3.Canadian Departure Tax

When leaving Canada, you will be charged a departure tax. Unlike other kinds of departure taxes which are levied at airports; this is calculated and paid as a part of your income tax filing. Let’s say a Canadian resident owns some property in the country, and in Germany, upon leaving the country, departure tax will be applicable. 

Arranging your residency facts well in advance can help you in a number of ways. If you’re looking for a reliable and experienced tax consultant, Faber can help.  Being in the industry for over 20 years, we’ve worked with several clients, providing top-notch tax advisory services. Our team works tirelessly to help clients achieve success.

Get in touch with our experts in Edmonton, Alberta today at 780-432-5262, and book an appointment.