Moving to Canada? Be Willing to Pay Higher Taxes
An increasing number of Americans want to leave the country and move to Canada, based on a survey conducted in 2018. It showed that 26% of respondents want to move, compared with 12% in 2016. (Image Credit)
While the survey’s respondents have different reasons for moving, the same financial planning will apply to those who proceed with a relocation this year. For instance, higher taxes await aspiring Canadians aside from the upfront cost of hiring full-service movers for long-distance migration and other related expenses.
A Completely Different Tax Structure
Married couples in the U.S. should expect to have fewer options for joint income tax returns when they move to Canada. Those who earn more may consider transferring their income-generating assets to their lower-income spouses before moving, which could reduce your total taxable income. This may require you to check the legitimacy of such a process, though.
Your destination will also determine how much you would pay for taxes. As an example, residents in Ontario and Quebec pay almost 54% of marginal rates. If you plan to transfer from Florida or Washington State, this rate is significantly higher than the marginal rate of 37% in both states.
Whether or not you are migrating to Canada for retirement reasons, it may be better to withdraw funds from your 401(k)s and individual retirement accounts (IRA). Don’t worry because you could still defer taxes while the money remains in the U.S. The Canada Revenue Agency allows this, and it may provide you with some time to think of the best way to handle your accounts.
It’s possible to convert your IRAs to a Roth IRA to qualify for a lower tax bracket in the U.S. prior to a move, or you could transfer the funds into a registered retirement savings plan. However, you should tread carefully when planning to transfer your retirement money into a Canadian account. There’s a possibility of double taxation if you do it incorrectly. As soon as you take care of your finances, the next step requires you to estimate your moving expenses.
The Best Time to Move
Choosing the right time of the year for relocation will greatly affect your budget. It’s ideal to schedule your moving date between October and April, when full-service movers for long-distance relocation charge cheaper rates because of lower demand.
You could further stretch your budget by looking out for inventory sales on office depots and department stores. Check if your local supermarket or restaurant gives away large boxes for free, but this will require you to be patient and set enough time for preparations, especially if you have a lot of stuff to pack before the trip.
Americans should consult an accountant or a financial planning expert to gauge the impact of their decision to leave the U.S. In case you’re still undecided, then spending a few days or weeks in your target destination in Canada could help make up your mind. Once you reach a decision, finding a full-service mover should be your next priority.