When Roger Ly’s* 83-year-old mother had hip surgery in March 2020, he flew to Montreal from his home in New York to help her recover. The visit was supposed to be temporary. But with the Covid-19 pandemic soon raging in New York, Roger, 48, extended his stay and started working remotely for his Manhattan-based tech company. A year and a half later, he’s still in Montreal. His employer now allows him to work remotely full-time. Roger, a Canadian citizen, is trying to decide whether to make the move permanent.
Roger met his partner, Luisa Mascherano*, 51, in 2019. Luisa, an architect who owns a three-bedroom Brooklyn brownstone, joined him in Montreal at various points throughout the pandemic when she was able to travel. As a partner at her architecture firm, she’s able to work from anywhere, with bi-monthly visits to the New York office. After spending much of the past summer enjoying the shops and terraces of Mile End, Luisa thinks she may want to live there too. She started talking to property managers about renting out her home, potentially keeping a basement suite where she can stay on her visits.
Roger has lived with his mother, a widow, for the past 18 months. He’ll rent an apartment if Luisa comes, but he’s worried about leaving his mother alone. (His only sibling lives in Calgary.) The surgery left his mother more frail than he remembered, and after the past year he refuses to move her to a long-term care facility.
What are their options? Roger, who earns US$132,000, wants to pay for his mother’s care.
Roger is a U.S. permanent resident and would like to maintain that status for as long as possible in case things don’t work out in Montreal. In addition to his 401(k), Roger has US$750,000 in an unregistered account.
* These are hypothetical clients. Any resemblance to real people is coincidental.
Director, wealth management, portfolio manager, investment advisor, Richardson Wealth in Montreal
Partner, Dentons Canada LLP in Toronto
Senior vice-president and portfolio manager, private client group, Coleman Wealth, Raymond James in Toronto
Answers have been edited for length and clarity
Employment and tax concerns
Henry Chang: There are two things Roger can do to keep his green card. The first is a re-entry permit, which he can obtain in the U.S. He would have to go back to the U.S. and file it while he’s there. A re-entry permit provides permission to reside outside the United States without being at risk of losing your green card. They’re issued for two years at a time. He can renew for another two years, but there’s a five-year cap, which means that for his third renewal, he’ll get one year.
After that, Roger will have to either give up his green card or consider a commuter alien green card, which is less common. A commuter alien green card allows you to live in a contiguous territory like Canada or Mexico as long as you continue to work for a U.S. employer and travel there frequently. The guidance says daily or weekly, but a Board of Immigration Appeals decision said you can go month to month. As long as there’s some regularity to Roger’s border crossings and he continues to be employed by a U.S. employer, he could apply.
However, every six months he’d have to go to the border and revalidate his commuter status by showing that he’s worked for the U.S. employer in person at least once within the preceding six months. It can be an inconvenience, but there is no cap for this and he could keep his green card forever.
For now, I’m not worried if Luisa is working remotely for a U.S. employer while physically in Canada because there’s no real connection to Canada, other than the fact that she’s physically there. Under Canadian immigration laws, she doesn’t require work permits.
After a year, she’ll have to obtain a work permit because she’s in Canada as a tourist and there’s a six-month limit to that status. Before that ends, she can file an extension for an extra six months. She can’t be a visitor forever, so she should transition to a more permanent status. However, she won’t be eligible for a work permit unless she has permanent ties in Canada. As a solution, she could enroll in school and become a student, or she could seek permanent residence as a spouse or common-law partner of a Canadian citizen.
Joseph Bakish: Entering into a legal marriage may allow Roger and Luisa to access U.S. tax benefits, such as the ability to file joint U.S. income tax returns. That may help reduce their U.S. income tax burden. Their green card and citizenship status would expose them to continued worldwide income taxation in the U.S. The income tax benefits associated with marriage can apply to people who are considered common-law partners.
HC: If they have been co-habiting for one year, they can be counted as common-law partners. Roger could sponsor Luisa as his spouse within Canada as a common-law partner. So Luisa could become a Canadian citizen and have dual nationality.
Darren Coleman: Roger may now be a Canadian tax resident again. That would introduce a significant number of tax reporting considerations for him both in Canada and the U.S. His employer would have to provide tax reporting to Canada, and would have to comply with Canadian employment standards and payroll reporting, including reporting Roger’s CPP and EI entitlements.
JB: To avoid double taxation, Roger should look for any available foreign tax credits. There was some administrative relief in 2020 for individuals who were otherwise non-resident but were in Canada and unable to leave because of the Covid-19 travel restrictions. The CRA may not count the days he was here due to the cross-border travel ban.
They’ll both have to file taxes in the U.S. because they’re U.S. citizens or permanent residents. Each state also has its own rules on residency and filing obligations, which they’ll have to check. Luisa doesn’t have to file Canadian taxes because she isn’t a resident yet. But should she move to Montreal, she’d have to file in Canada.
She also has some obligations to file in New York if she keeps her house for rental purposes. In Canada, she’d have to file Form T1135 to declare the foreign asset, as the house has a cost amount of more than $100,000. And she’d have to look at the adjusted cost base: the value of that real estate asset at the time of entering Canada as a resident will determine the cost basis.
DC: A U.S. financial institution can’t take instructions from Roger while he’s in Canada. And if he’s going to start filing Canadian tax returns, the U.S. financial institution will not give him any tax reporting to help him complete his Canadian returns. So he should investigate moving his unregistered account to a Canadian financial institution.
He can keep the account in U.S. dollars, depending on what he owns inside it. If he owns shares of Microsoft, for example, they should be portable to Canada. But if he has things like mutual funds in the U.S., those will not be portable to Canada. So he may have to liquidate those.
The 401(k) is a bit different. He will no longer be able to contribute to the 401(k) once he’s established residency in Canada but he can to continue to hold that plan. If he chooses to roll the 401(k) to an individual retirement account (IRA), that will be problematic because U.S. financial institutions that would manage the IRA will not open an account for him with a Canadian address on it. He would have to find a Canadian dually licensed financial advisor and investment firm to do that.
JB: If Roger becomes a Canadian tax resident, it might be possible for him to transfer his 401(k) funds to an RRSP on a tax-deferred basis.
Also, there is no tax-free account or TFSA equivalent in the U.S. Roger and Luisa, as U.S. persons, should avoid opening a TFSA because the account will be subject to U.S. withholding taxes.
Long-term care and estate planning
DC: Roger should assess the care his mother will need now, and find out from her medical team what her care needs may be in the future. A health-care advocacy firm can assist. Families can get a good sense of what support the family member requires, what services exist in the community that can be accessed with government support, and what they may have to purchase privately.
The other thing Roger and Luisa must consider is their own estate planning. Who has the power of attorney?
JB: The residency of that attorney, executor or liquidator is really important when it comes to filing taxes for the estate. They may think they’re in the clear because they have someone in the U.S., but that could create tax issues up here.
DC: For example, if it’s their Canadian estate and they have a U.S. executor, the estate could wind up becoming taxable in the United States. Make sure they have competent advice from someone who understands the complexities of cross-border estate situations.