american citizens in canada

Our website and letterhead uses “HCBT” as an abbreviation for Hanson Crossborder Tax Inc.  After the next few posts HCBT could also mean Hanson Cross Border Tragedies.  These are real life sanitized client stories to illustrate the financial and emotional burden created if cross border tax situations receive inadequate care and attention. The first in the series involves a typical Canadian family in which the main breadwinner gets the chance of a lifetime to relocate to the USA at a substantially higher salary.   Canadian Expat Post #1 will summarize the facts, common to many Canadians that relocate to the US for career purposes.

Post #1 Background 

  • Family of two Canadian spouses plus 2 young children lives Ontario [S1; S2; C1; C2];
  • Family home is owned jointly by S1 & S2. Purchased in 2008 for $450,000; Estimated value in December 2013 $600,000;  Expected value increases $50,000 in each subsequent year;
  • S2 employed in previous years. Primary responsibility now is care of C1 & C2;
  • S2 owns 1,000 shares from a previous employer stock option program. Shares cost basis is $5,000.  Estimated value in December 2013 is $60,000;
  • S1 employed by Canadian employer for $150,000 CDN per year;
  • S1 has self-directed RRSP with $100,000 in mutual funds / ETF’s. Maximum contribution has already been made earlier in 2013;
  • S1 purchased a recreational vehicle for $75,000 in August 2013;
  • In early December 2013, S1 is offered a position with Texas company with an annual base compensation of $225,000 USD;
  • Family relocates to Texas in December 2013; rents apartment so S1 can start a new job on January 2nd, 2014;
  • S1 & S2 decide to rent the Ontario family home rather than sell it. S2-B, brother of S2, lives near the family home.  S2-B will obtain tenants, repair and maintain property, collect / deposit rents for fee of $200 per month.  S2-B has no previous experience in rental property management.
  • Tenants move in on January 2, 2014 and pay rent $1,800 per month. S1 & S2 expect that they will breakeven costs versus rent.  Tenant rent is deposited into joint bank account of S1 and S2 at an existing Canadian bank account.
  • S1 & S2 did not seek legal or financial advice about selling or renting the family home;
  • S1 prepared and filed a 2013 T1 return reporting employment income, RRSP deduction, spousal credit;
  • S2 had no income and therefore did not file a 2013 T1 return;
  • S1 & S2 prepared and filed joint US returns for each 2014 & 2015, reporting only US income, i.e. Texas employment earnings;
  • On August 30, 2016, S1 and S2 receive an offer to sell the Family home for $900,000 with closing date on September 30, 2016.

Unfortunately, tax planning was not considered by the family described above. Next week please come back to read post #2 of this series and let’s see what happened.