Cross Border Brings Complications, Part 1

Many people never do anything out of Canada so they don’t have to be concerned with the complications of planning cross border.  However, there are many people that spend time in the U.S. and in other countries, invest across border, do business across border, and more.  Many people just get caught in the moment and move forward without seeking professional guidance.  If you are traveling out of the country for any extended time, investing across border or doing business across the border there are key details you must know.  The key point that I want to make here is that whenever you are doing anything cross border, it is imperative to see a professional or multiple professionals that can help to ensure you plan for any tax and reporting consequences that you may have to deal with.  For this blog and the next (parts 1 & 2), we will be mostly talk about cross border in the sense of Canadians dealing and traveling to the U.S. and as always the details in the blogs are date sensitive to the current dates that the blogs are written on.

To start with, let’s talk about some of the main issues that seem to arise when dealing and traveling cross border.  If you or your spouse have dual citizenship or have assets in the U.S. you most likely will have to file a U.S. tax return.  Many don’t file and it can catch up with them later down the road.  Many people just deal with the tax authority where they currently live, CRA in Canada the IRS in the U.S., and many people don’t even understand that there is a tax treaty between Canada and U.S. that determines how many things work for cross border assets, transactions, traveling and more!  Many people get double taxed by not understanding what the treaty offers.  For example the IRS tends to tax capital gains made on RRSPs if the holder is residing in the U.S. Worse, if the holder returns to Canada and discharges the RRSP, the holder gets no tax credit for tax already paid in the U.S. However, in a situation like this, it is possible to defer taxes by invoking the Canada/U.S. Treaty to stop the double taxation. The Canada/U.S. Treaty has been revised multiple times since its 1980 inception and will continue to evolve.  The Treaty can override sections of the Canadian and U.S. Tax Acts to help ensure double taxation doesn’t happen.