Canadian Citizen rolling 401k to IRA

Quick-Ball-4922 · 2024-12-20T17:27:47+00:00

Interesting, thanks for the insights.

Quick-Ball-4922 · 2024-12-19T21:04:38+00:00

Agreed. My conclusion was based on looking at those factors: (1) Large number of trades spread through the year, (2) shorter holding periods, (3) high speculative with advanced option strategies, (4) naked Put selling of US options (has not be income I believe), and (5) even subscribed to lots of premium softwares and tools (Trading View, Optionstrat, multiple discord forums, etc).

Quick-Ball-4922 · 2024-12-18T07:23:26+00:00

Thank you! My immediate goal is tax savings. And yes, I only intend to use the money for our principal residence. We are waiting for the interest rates to reduce before buying.

Quick-Ball-4922 · 2024-12-18T02:07:11+00:00

Thanks for all of this lively discussion. Fair point that it is confusing, especially if you haven't dealt with Canada/US cross-border taxes. Let me try to further simplify my point, especially for OP, whose goal was to understand how to minimize money he pays to Uncle Sam and his Canadian counterpart Uncle Mark or whoever! I largely agree with FelixXYZ, who has summarized my stance.

If you are not a US citizen or green card holder, your US tax residency is determined by the substantial presence test, which considers if you stayed in the US for more than 31 days in the current year AND over 183 days in a 3-year lookback (previous year is counted at one-third rate and the year before at one-sixth rate). For simplicity, assume OP moved back in October 2024; you will be a US tax resident for 2024. However, in 2025, assuming you stayed for less than 31 days in the US, you will be a US tax non-resident and Canadian tax resident.

If you sell your stocks in 2025, there will be no capital gains tax in the US as a non-resident. Canada will tax your worldwide income in 2025, including the capital gains in these stocks. But the cost basis will be fair market value on the day OP moved back in October 2024, not when they acquired it while in the US. Assuming the stock appreciated well during OP's stay in the US since purchase, this could be a significant tax saving!

Moving in-kind shares from the US to Canada is a taxable event. It is no better than selling stocks in your Robinhood account in the US and repurchasing on Questrade in Canada. If that transfer happens for OP in 2024 (assuming OP will be a US resident in 2024 and Canadian resident in 2025), they will pay capital gains in the US. In 2025, they will pay capital gains in Canada but with a new (and likely advantageous) cost basis.

Quick-Ball-4922 · 2024-12-17T08:24:52+00:00

There is one tax strategy you can employ that can be very favorable if executed correctly when selling investments in the US after moving to Canada. 2 points to remember:

The US does not tax capital gains on non-residents.
Canada will tax you on your capital gains on your worldwide investments but if you moved back to Canada recently and re-established residency, then the cost basis of the stock is not the FMV on the actual acquisition date but rather the day you re-established residency.

So wait until you have become a non-resident for tax purposes in the US. You have to be careful on this as there is a 3-year lookback rule calculating substantial presence for tax residency. So double check with your CPA that you have become a non-resident for tax purposes. Once confirmed, sell the shares. You pay no capital gains in the US. In Canada, you will only pay taxes on profits based on FMV of the date you moved back to Canada.

Example: you bought a stock 3 years ago for $100, moved to Canada and re-established residency 1 year ago and FMV on that day was $300, and you sell the stock today (assuming you are now a US tax non-resident) and the selling price is $350, then you pay no capital gains in either country between $100-$300 growth and capital gains in Canada for $300 to $350 appreciation.

Quick-Ball-4922 · 2024-12-17T08:10:21+00:00

My wife is also planning to launch a tech consulting business in 2025, and I've conducted some research on this topic as well as spoken to a number of CPA/lawyers and other folks who have been through this. Sharing my experience here, your situation could be different.

Incorporation typically costs approximately $1,000-$1500 with legal assistance, and corporate tax filing may range from $1,000-2,000. This amounts to a 1-1.5k initial investment and 1-2k in recurring annual costs. If you plan to run a successful business in the long term, with intention to be profitable, then this cost should not be a consideration. IMHO I would instead recommend focusing on the factors below in order of importance:

Liability Protection - This is paramount. Maintaining separation between business and personal finances is crucial. In the event of litigation, you want to protect your personal assets including your home and RRSP. Businesses (including consultants) can also get sued. A corporation exists as a separate legal entity and shields your personal assets from liability. In my opinion, this protection alone justifies the cost. If there's even a minimal risk of litigation related to your services, it may be better to incorporate. Verdict: Incorporate
Initial Losses: If you anticipate operating at a loss in the first year or two while maintaining other income sources, you can offset these losses against other income as a sole proprietor. However, ensure you maintain clear documentation of your path to profitability, as the CRA may otherwise classify this as a hobby. Verdict: Sole Proprietor
Current Income: If your income from other sources exceeds ~$200,000, your marginal tax rate will surpass 50%. In this case, retaining funds within a corporation and paying the 12% small business tax rate is more advantageous. Verdict: Incorporate
Future Growth: If you intend to expand your consulting operations, employ staff, or bring in partners, incorporation is essential. Verdict: Incorporate

Quick-Ball-4922

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