Category: Tax Planning

North American Investing Insights is a vital part of understanding why the United States stands alone among developed nations in requiring its citizens to file two separate tax returns. American citizens must submit both a local tax return and a U.S. tax return, regardless of whether they live in Spain, the UK, Dubai, or Panama.

Many Americans and Canadians maintain strong financial connections to their home countries. Some hold pensions or assets in the U.S. or Canada from their previous residence there. The United States stands apart from roughly 130 countries that share financial information. This limitation creates major hurdles for Americans living overseas. The situation becomes more complex for those who own U.S. stocks, ETFs, or investment funds. Based on our work with clients across 35 countries, we’ll explain exit taxes, pension assets, and the tax risks linked to your North American investments.

Are you an American or Canadian expat?

Your tax situation looks entirely different as an American versus a Canadian living abroad. Americans can’t escape their tax obligations no matter where they live. Canadians see their tax picture change the moment they settle somewhere else.

Understanding your tax identity abroad

American expats face a unique challenge in the digital world. The US stands almost alone globally – with only Eritrea for company – in taxes based on citizenship instead of where you live. This means the IRS wants to know about every dollar you make worldwide.

Your US tax filing duties don’t go away just because you live in another country. You need a Taxpayer Identification Number (TIN), usually your Social Security Number, to file federal taxes and report your foreign accounts. Life gets even more complex if you work for yourself abroad – you might have extra headaches with self-employment taxes.

Canadian expats work under different rules that focus on where they live. Your tax status depends on whether you keep “important residential ties” to Canada. These ties are about:

• Where you usually live
• Where your spouse or common-law partner lives
• Where your dependents live

The “183-day rule” also matters – you might still count as a resident for taxes if you stay in Canada for 183 days or more in a tax year. Many Canadians file form NR73 with the Canada Revenue Agency (CRA) to make their non-resident status official.

Why your citizenship still matters financially

American expats can’t escape their financial duties to Uncle Sam. You must file US tax returns every year and report all your worldwide income. The Foreign Earned Income Exclusion helps you avoid paying twice, but you still need to file those forms.

US citizens must also tell the government about their foreign bank accounts through the Foreign Bank Account Report (FBAR) if they have enough money in them. The penalties for not filing can get serious – you might face big fines or even lose your passport if you deliberately ignore the rules.

Canadians who become non-residents shake off their tax ties to home. But there’s a catch —you’ll face an “exit tax” on capital gains from non-registered investments. The CRA acts as if you sold everything you own and taxes your gains right then.

Canadian expats should know they might still owe some Canadian taxes. Money from Canadian sources like RRSP withdrawals, CPP/OAS benefits, or dividends faces withholding taxes up to 25%, though tax treaties might lower this.

The US-Canada tax treaty helps determine which country has priority in taxing different types of income and prevents double taxation through foreign tax credits. But this treaty doesn’t change the basic difference between how the US taxes citizenship and Canada taxes residency.

Your citizenship and where you live shape every money decision you make as an American or Canadian abroad. These differences affect how you invest, plan for retirement, and manage your finances. Learning these rules helps you avoid mistakes that could cost you money while living in another country.

The tax traps of living abroad

Life as an expat doesn’t free you from U.S. tax obligations. The IRS still wants its share of your income, even from across the globe. Let’s look at some financial surprises that catch many Americans off guard when they move abroad.

Double taxation and reporting requirements

The U.S. tax system works differently from most countries. Uncle Sam wants his cut whatever country you live in. American expats must file U.S. taxes on their worldwide income yearly, which often leads to paying taxes twice – once in their new home country and again to the U.S.

Tax filing comes with some flexibility. Americans living abroad got an automatic extension to June 16, 2025 (since June 15 falls on a Sunday), and they can push it further to October 15. The catch here is simple – this extra time applies only to filing paperwork. You still need to pay any taxes by April, whatever country you’re in.

Missing that April payment triggers IRS penalties quickly. They charge 0.5% of your unpaid balance monthly, up to 25%. The IRS also adds 7% yearly interest, which compounds daily, on both the unpaid taxes and penalties. Your debt snowballs faster each passing day.

A common mistake expats make is thinking they don’t need to file without owing U.S. taxes. The Foreign Earned Income Exclusion lets you exclude up to $124,047 of foreign-earned income from U.S. taxes in 2025. This amount often means no U.S. taxes, but you still must file a return and Form 2555 to claim this benefit.

What is FBAR, and why does it matter?

FBAR reporting becomes mandatory when your foreign financial accounts total more than $10,000 at any point during the year. This covers bank accounts, broking accounts, mutual funds, and often retirement accounts.

People often underestimate the $10,000 threshold. To cite an instance, see what happens when you move $5,001 between accounts – your daily total jumps above $10,000, and you need to file an FBAR. It also applies to accounts where you can sign, even if the money isn’t yours.

You don’t file your FBAR with tax returns. It needs separate submission through FinCEN’s BSA E-Filing System by April 15, with an automatic extension to October 15. Each account requires these details:

• Name on the account
• Account number
• Name and address of the foreign bank
• Type of account
• Maximum value during the year

Breaking these rules gets expensive. Non-wilful violations cost up to $10,000 per year. A 2023 Supreme Court ruling made it clear – this applies yearly, not per account. Wilful violations hit harder at $100,000 or 50% of your account balance, whichever costs more.

PFIC rules and penalties for non-compliance

PFICs (Passive Foreign Investment Companies) generate passive income through dividends, interest, royalties, or capital gains. Most foreign mutual funds, hedge funds, and many retirement plans fall into this category.

Foreign investment funds usually count as PFICs. These investments need complex reporting and face tough tax treatment. Form 8621 becomes necessary for each PFIC when you:

• Receive distributions from the PFIC
• Sell PFIC shares
• Make certain elections
• Hold PFICs worth more than $25,000 (single) or $50,000 (joint)

PFIC tax rules hit hard by default. Your distributions and gains get taxed as ordinary income (up to 40%), while deferred gains face compound interest penalties. Better tax treatment options exist, but you must choose them when you first buy.

Skipping Form 8621 costs up to $10,000 per form yearly. The IRS can audit these forms forever – no time limits apply. Tax professionals often charge $500-$1,000 per PFIC because of this complexity.

Smart planning helps expats avoid these tax traps. Learning your obligations and staying compliant protects you from penalties that could ruin your overseas experience.

Exit taxes and residency rules for Canadians

Canadian expats have a big challenge when they leave the country – they must deal with the dreaded departure tax. Americans stay connected to the IRS regardless of where they live. Canadians can break free from the Canadian tax system, but the Canada Revenue Agency (CRA) wants one final settlement.

What is a deemed disposition?

The CRA treats your exit from Canada as if you sold most of your assets at fair market value when you become a non-resident for tax purposes. You might still own these assets, but this “deemed disposition” means you’ll pay capital gains tax on any investment growth up to your departure date.

The CRA won’t apply this rule to everything. The following assets are exempt from deemed disposition:

• Canadian real estate and resource properties
• Assets used in Canadian businesses through a permanent establishment
• Registered accounts like RRSPs, RRIFs, and TFSAs
• Life insurance policies in Canada (excluding segregated funds)
• Employee stock options

You don’t need to worry about paying for everything right away. Filing Form T1244 lets you delay paying the departure tax until you actually sell your assets. Please ensure this is completed by April 30 of the year following your departure. Tax amounts over €15,747 need proper security to cover what you owe.

How to sever residential ties properly

Leaving Canada’s tax system takes more than just buying a plane ticket. Your “residential ties” matter most to the CRA. You’ll need a solid plan to cut these connections.

These are your major residential ties:

• Your dwelling place (primary residence)
• Your spouse or common-law partner’s location
• Your dependents’ location

Your secondary residential ties include:

• Economic and social connections (employment, bank accounts)
• Personal property remaining in Canada
• Driver’s licenses, health cards, and club memberships

In stark comparison to this, keeping your Canadian home won’t automatically disqualify you from non-residency status. Renting it out works fine if you don’t keep unlimited access or create short-term rental agreements that hint at coming back. Closing all your bank accounts might seem like a beneficial idea, but it could lead to penalties with registered accounts.

Let your financial institutions know about your non-resident status. This step will provide you the right withholding taxes on Canadian-source income and proper tax slips.

Filing NR73 and immigration returns

Form NR73 (Determination of Residency Status) is a vital document for your departure. You don’t have to submit it, but it helps get the CRA’s official opinion on your residency status. Tax experts often suggest filling out this form when you leave but keeping it handy unless someone asks for it.

Your final tax duties include a departure tax return due by April 30 of the year after you leave Canada. This return:

• Shows your official departure date
• Lists property you owned when leaving
• Contains needed tax election forms
• Reports and pays departure tax (or chooses deferral)

You must file Form T1161 (List of Properties by an Emigrant of Canada) if your property’s fair market value tops €23,855.25 when you leave. Missing this filing could cost you up to €2,385.53 in penalties.

For property with capital gains, you’ll need Form T1243 (Deemed Disposition of Property by an Emigrant of Canada). These gains go on Schedule 3 of your tax return.

Smart planning before you leave can cut your tax bill substantially. Meeting a cross-border tax specialist a few months before your planned departure helps organise everything. You might even offset some gains from the deemed dispositions by recognising losses.

Do you still hold pensions or retirement accounts in North America?

Many expats worry about their retirement savings after moving abroad. These retirement accounts often hold life savings from years of careful planning. The rules change once you start living in another country.

401(k), IRA, and RRSP: What happens when you move?

Americans who move abroad can keep their 401(k) and IRA accounts. You don’t need to close these accounts —they’ll keep growing based on your investments. Things get trickier with new contributions. Most 401(k) plans need U.S. employment. You can only keep contributing if a U.S. company hires you while you’re living abroad.

You’ll need earned income above the Foreign Earned Income Exclusion (FEIE) limit to contribute to IRAs. Traditional and Roth IRA contribution limits reached $6,500 per year in 2023. This goes up to $7,500 for Americans over 50. Here’s the catch – you can’t contribute to an IRA if the FEIE covers all your income and you have no other money coming in.

Canadian RRSPs work like American 401(k)s as tax-deferred accounts. Your RRSP investments grow without taxes until you take the money out. You can keep your RRSP after leaving Canada. The downside? Withdrawals face a 25% Canadian withholding tax for non-residents. Your rate might drop to 15% if you take out less than twice the minimum annual payment.

How to access or transfer these accounts

Americans living abroad have several options for managing their U.S. retirement accounts:

1. Keep your 401(k) with your old employer (if they allow it)
2. Move it to an IRA to get better investment options and maybe pay lower fees
3. Switch to a Roth IRA (but you’ll pay taxes right away)

Watch out – some U.S. retirement account providers won’t work with people living outside the U.S. Your account might get frozen, face restrictions, or even close. If you die while living abroad, your non-U.S. citizen spouse might not get spousal rollover rights.

Canadians with RRSPs should check their unlocking options before leaving Canada. The pension laws often let non-residents unlock their accounts fully. You must also turn your RRSP into a Registered Retirement Income Fund (RRIF) or pick another retirement income option by age 71.

Tax implications of early withdrawals

Taking money out early from retirement accounts comes with hefty penalties on top of regular income tax. U.S. accounts charge a 10% penalty for withdrawals before age 59½. You might avoid such penalties with disability claims, certain medical costs, or regular periodic payments.

The IRS sees 401(k) and IRA distributions as passive income. This means you’ll pay full taxes on them and can’t use the Foreign Earned Income Exclusion. U.S. tax rules apply regardless of where you live.

Foreign taxes create extra headaches. Many countries don’t recognise the U.S. pension plans’ tax-deferred status. This could mean paying taxes twice. The U.S. has tax treaties with more than 60 countries that might help, but early withdrawals might not qualify for these benefits.

Non-residents taking money from U.S. retirement accounts face a 30% withholding tax. Tax treaties might lower this. You’ll need Form W-8BEN to claim treaty benefits. Without it, they’ll take the full 30%.

Non-residents taking money from Canadian RRSPs pay 25% withholding tax on lump sums. Periodic pension payments might qualify for a 15% rate. Knowing these tax rules before withdrawing money helps protect your retirement savings from surprise tax bills.

Do you own U.S. stocks, ETFs, or investment funds?

Tax situations become complex with investments across borders, and this can affect your returns significantly. If you’re an expat with U.S. investment accounts, you need to understand tax implications to protect your wealth and avoid compliance issues.

Withholding taxes on dividends

Your citizenship and residency status determine how dividend taxes work on U.S. investments. Non-U.S. residents pay a 30% withholding tax on U.S.-source dividends. This means you’ll see $300 taken out right away from every $1,000 in dividends.

The good news is that many countries have tax treaties with the United States that lower this rate. Most treaties reduce the standard 30% rate to 15%. You’ll need to submit Form W-8BEN to your financial institution to get this lower rate by proving your foreign status and treaty eligibility.

American citizens living abroad follow different dividend taxation rules. U.S. citizens must report all worldwide dividend income on Form 1040, whatever their location. Dividends don’t qualify for the Foreign Earned Income Exclusion, which means you’ll pay full taxes on them.

Why U.S.-domiciled ETFs may not be ideal

Expats face several challenges with U.S.-domiciled ETFs. U.S. mutual fund companies don’t let non-U.S. residents buy new shares, though you can keep what you already own. Securities regulations in different countries create this restriction.

Non-U.S. investors might owe estate taxes up to 40% on amounts over certain thresholds with U.S.-domiciled investments. You could owe this estate tax even if you’re not a U.S. citizen or resident at death.

Regulatory hurdles exist in certain regions too. The European Union’s Markets in Financial Instruments Directive (MiFID) requires a Key Information Document (KID) for retail investment vehicles. U.S. ETF issuers can’t provide these documents because U.S. securities law doesn’t allow the performance forecasts needed in KIDs.

American expats who own foreign-domiciled mutual funds or ETFs must deal with complex PFIC reporting requirements. Each PFIC needs yearly reporting on Form 8621, which takes over 20 hours to complete according to the IRS. PFICs face harsh tax treatment – gains are taxed as ordinary income instead of getting better capital gains rates.

Alternatives like Irish or Luxembourg ETFs

Irish-domiciled ETFs have become popular among expats. Their original appeal comes from Ireland’s good double taxation treaty with the United States, which cuts withholding tax on U.S. dividends from 30% to 15%. This tax benefit adds about 0.15% yearly to your returns compared to ETFs based in countries without similar treaties, especially for U.S. indices like the S&P 500.

Irish ETFs also help you avoid concerns about U.S. estate taxes. Investing in Irish ETFs means you won’t face U.S. estate taxes that might apply to U.S.-domiciled investments.

These funds offer both distributing and accumulating share classes. Accumulating funds puts dividends back into the investment, which might give you tax advantages based on where you live.

Luxembourg is another popular place for ETFs, with about 18% of the European ETF market share and over 300 billion in assets. However, Luxembourg-domiciled ETFs usually pay the full 30% U.S. withholding tax on U.S. dividends, making them less tax-efficient than Irish ones for U.S. equity exposure.

Your citizenship, residency, and financial situation will determine the best investment structure for you. Working with advisors who understand cross-border investing can help you minimise taxes while remaining compliant with all relevant jurisdictions.

Where is your money now? Custodians and access

Your investments need a safe home when you move abroad. Many expats experience a shock when their financial institutions abruptly sever their connections, leaving their money in a state of uncertainty.

Why some U.S. brokers won’t work with expats

American custodians and wealth management firms tend to stay away from non-resident clients. This isn’t about you – it’s about their structure. U.S. financial advisors can only work with U.S. residents legally. The moment you move abroad, they have to end their relationship with you.

These firms don’t deal very well with the paperwork needed for international clients. Tax reporting and anti-money laundering rules create too much work for companies without the right setup. This leads to clients getting sudden notices to move their money by certain dates. Sometimes their accounts just get frozen.

Using custodians like Schwab or Interactive Brokers

The good news is that some financial companies have stepped up. Charles Schwab International welcomes U.S. expats and lets them open broking accounts if they qualify. Schwab clients get:

• U.S. dollar accounts with cheques and debit cards
• Help with international wire transfers and currency exchanges
• Easy U.S. tax reporting with online statements and 1099 forms

Interactive Brokers (IB) might be the most available option worldwide, serving clients from over 200 countries. Unlike Schwab, which focuses on U.S. markets, IB lets you trade in 150+ markets using 27 different currencies. IB’s cheap forex trading is perfect for expats who earn and spend in foreign currencies.

Both platforms have their limits. Schwab doesn’t work in every country —you’ll need to check if you qualify through their international account menu. IB’s platform might be too complicated if you’re new to investing.

How to move money abroad safely

EU residents can’t buy U.S.-registered ETFs on either platform. While advisors using Schwab’s institutional platform can still get these investments, regular customers cannot. The result makes it harder for investors to spread their risk.

Make sure your chosen custodian works in your new country. Even expat-friendly companies have places they won’t serve, especially countries under U.S. Treasury Department sanctions.

Using a U.S. address while living abroad is a dangerous idea. It could be fraud, and you’ll have problems if the company finds out where you really live. Your best bet is to work with legitimate cross-border financial providers who understand what it means to invest internationally.

Estate planning and inheritance tax risks

Estate planning gets much more complex when assets cross international borders. Your heirs might lose a big portion of their inheritance to overlooked taxes. This phenomenon makes cross-border estate planning crucial for expats managing their finances.

U.S. estate tax for non-residents

The IRS has a hidden tax trap for non-U.S. individuals who own U.S. assets. Death triggers taxes on U.S.-situated property at rates from 18% to 40%. U.S. citizens get generous exemptions, but non-residents only get $60,000 in protection. A modest California apartment could lead to hefty tax bills because of this small exemption.

Assets subject to estate tax in the U.S. include:

• U.S. real estate
• Tangible property physically located in the United States
• Stocks in U.S. corporations, even if certificates are held abroad
• U.S. trade or business interests

Any U.S. estate worth more than $60,000 must file Form 706-NA within nine months after death. Some countries have estate tax treaties with the U.S. that offer better exemptions, including Australia, Canada, Finland, and the United Kingdom.

Canadian capital gains at death

Canadian tax rules differ from U.S. estate taxes through a “deemed disposition” approach. The CRA views death as a sale of all property at fair market value right before death. This means you might owe capital gains tax on appreciation even without selling anything.

Capital gain calculations involve:

• The fair market value of property on death date
• Minus the adjusted cost base (original cost plus improvements)
• Equals the capital gain or loss

Some properties don’t face these taxes, including principal residences, qualified farm or fishing property, and small business shares. The year 2024 splits capital gains calculations into two periods with different inclusion rates for dispositions before and after June 24.

Cross-border wills and trusts

Managing estates across borders creates many planning and administration challenges. Each country has its own probate laws about transferring assets after death. This situation makes international wills vital for anyone owning assets in multiple countries.

Trusts can help solve cross-border estate planning issues. Non-Canadian residents with Canadian beneficiaries might benefit from a “Granny Trust” to protect family wealth while handling Canadian tax issues. Non-U.S. residents with U.S. beneficiaries could look into a Foreign Grantor Trust (FGT).

Tax treatment varies for foreign trusts based on their classification. Foreign non-grantor trusts usually face taxes like non-resident alien individuals, paying tax only on U.S.-source income. Distributions of undistributed net income might trigger harsh “throwback rules” to prevent tax deferral.

You need expert cross-border tax knowledge to guide you through these complex regulations and keep more wealth for your heirs.

Building a compliant and global financial plan

Building a strong global financial strategy needs more than just avoiding tax issues. A well-laid-out plan safeguards your assets and helps you find growth opportunities beyond borders.

Varying by currency and geography

Your wealth can erode substantially when you earn in one currency but spend in another. Smart investors build multi-currency portfolios that naturally protect against currency swings. Money spread across different economies helps reduce the risk of having too much in one market.

Most successful expats choose U.S.-based ETFs through competitive brokerages instead of multiple international accounts. This method makes tax reporting easier while providing access to global markets through worldwide index tracking vehicles.

Health insurance and long-term care abroad

Expats often overlook healthcare planning when managing their finances. Canadian health plans usually stop coverage after 6–8 months outside of the country. Travellers’ insurance covers only emergencies, not ongoing health issues. About 2.8 million Canadians live abroad, and they all need different coverage options.

Global health insurance plans give detailed protection that includes hospital stays, regular checkups, and evacuation services. These worldwide policies take the place of both provincial medical coverage and extended health plans from your home country.

Working with cross-border financial advisors

Experts who know multiple jurisdictions can help direct you through complex regulations affecting expats. They guide you with currency risk management, PFIC compliance, and the best investment structures. Their comprehensive financial planning ensures that all aspects of your finances work together smoothly.

Conclusion

Life as an expat complicates your finances, especially with ties to North America. You need to protect your wealth abroad by understanding tax implications, reporting requirements, and investment options.

U.S. citizens face unique challenges because their tax obligations follow them worldwide. Your filing requirements continue whatever country you call home. The situation makes compliance with FBAR requirements and PFIC rules vital to avoid heavy penalties. Canadian citizens have it different – once they establish non-residency, their tax obligations stop. However, they still need to handle departure taxes and any income from Canadian sources.

Retirement accounts bring their own set of challenges. While keeping your 401(k), IRA, or RRSP after moving abroad is possible, withdrawing money has tax implications based on your specific situation. Your investment approach needs a fresh look too, since U.S.-based funds might not be your best choice as an expat.

Finding a financial custodian can be tricky. Many U.S. brokers won’t work with overseas clients. But some companies like Schwab International and Interactive Brokers, welcome expats. These platforms let you spread your investments across different currencies and regions to protect against exchange rate changes.

Estate planning needs extra attention because cross-border estates face major tax exposure. Without the right planning, U.S. estate taxes or Canadian deemed disposition rules could take a big chunk of your heirs’ inheritance.

Managing finances as an expat requires specific expertise and careful planning. Working with advisors who understand cross-border situations helps you keep your financial plans compliant and optimised for international living. This all-encompassing approach protects your assets while you enjoy your global lifestyle without financial worries.