Keeping Canadian Investment Accounts After Moving to the US: the Broker Problem, the PFIC Problem, and the Pre-Move Cleanup

Short version: What Is a PFIC? Passive Foreign Investment Companies

The taxable investment account is where a Canadian move to the US gets operational. Three separate problems arrive at once. First, the custodian: Canadian securities dealers face US registration limits on servicing US-resident retail clients, and most respond by restricting non-registered accounts — hold-and-sell only, or closure letters. (Registered accounts like RRSPs get friendlier treatment; taxable accounts get the door.) Second, the holdings: the moment you are a US taxpayer, Canadian mutual funds and Canadian-listed ETFs are passive foreign investment companies — the US regime that taxes fund gains and large distributions at top ordinary rates plus an interest charge under the default method, with Form 8621 per fund per year. Individual stocks (Canadian or US) are fine; the fund wrapper is the poison. Third, the tax mechanics: the departure tax has deemed your positions sold at departure-date values — Canada's claim on the accrued gains is settled — while the US, absent the treaty basis election, still sees your historic cost. Together these argue for the same plan: clean the account before you go. Sell the funds while still a Canadian resident (the departure tax was going to tax those gains anyway — an actual sale produces the same Canadian tax with a clean US basis and no PFIC ever), decide what individual positions to keep, move whatever survives to a custodian that will genuinely serve a US address, and coordinate the treaty basis election for anything carried across with the deemed-disposition values.

Key takeaways

• Ask the custodian in writing, early: will they hold, trade, and advise a US-resident non-registered account? Most restrictions surface as freeze letters months after the move — the worst time to be forced into sales.
• PFIC is the holdings test, not the account test: Canadian funds and Canadian-listed ETFs are PFICs wherever held (including inside a kept TFSA or a Canadian corporate account); US-listed ETFs and individual stocks are not. The fix is a pre-move swap, executed while only Canada is watching.
• Selling before departure is cheap because the departure tax made it so: an actual sale and the deemed disposition produce the same Canadian tax on the same gain — selling adds no Canadian cost, and buys a market-value US basis, cash mobility, and zero PFIC history.
• For positions kept: the treaty election aligns US basis with the departure-date deemed-disposition values so the gain Canada taxed is not taxed again by the US — a filing made with the first US return, supported by the T1243 values, and easy to miss without coordination.
• Currency and paperwork after the move: a kept Canadian account is an FBAR and 8938 item; Canadian dividends to a US resident carry 15% treaty withholding (creditable); interest is generally exempt from Canadian withholding; and the Canadian dividend tax credit is gone — Canadian dividend-payers lose their home-field advantage in a US taxpayer's hands.
• The end-state most movers should reach: one US brokerage account with US-listed holdings, a possibly-kept Canadian account only where a real reason exists (Canadian-dollar spending, specific positions), and no fund-wrapped Canadian products anywhere.

The triage, in order

Ninety days out: inventory holdings and tag each — PFIC or clean, keep or sell. Sixty days: custodian answers in hand; open the US-side account and any replacement Canadian custodian. Thirty days: execute the fund sales and the swaps into US-listed equivalents; harvest or defer individual positions with the departure tax math in view (a position you'd sell within a year anyway is usually better sold now — same Canadian tax, simpler US life). After arrival: the treaty basis election with the first 1040 for everything carried, the FBAR/8938 setup, and a standing rule for the future — no Canadian-listed funds, ever, while a US return is being filed.

Worked example

A Mississauga couple moving to Charlotte holds C$700,000 in a non-registered account: C$420,000 in Canadian equity and bond mutual funds (C$110,000 accrued gain), C$180,000 in individual US stocks (C$45,000 gain), C$100,000 in a Canadian bank stock (C$30,000 gain). Their brokerage confirms US-resident accounts go hold-only. The plan: all mutual funds sold in the final Canadian month — the C$110,000 gain lands on the final return exactly as the deemed disposition would have landed it, and no PFIC ever exists; proceeds buy US-listed ETFs in a new account at a cross-border custodian. The US stocks and bank stock transfer in kind; the deemed disposition taxes their C$75,000 of gains at departure anyway, and the treaty basis election sets US cost at departure-date values so the US taxes only future growth. Post-move reporting: one Canadian account on the FBAR, 15% withholding on the bank stock's dividends (credited on the 1040), no 8621s, no freeze letters. Total extra Canadian tax from acting early: zero — the departure tax had already claimed every dollar the sales realized.

Official sources

Form 8621 is filed by a US person that is a direct or indirect shareholder of a passive foreign investment company, including to report distributions, dispositions, and elections such as the qualified electing fund and mark-to-market elections. — Internal Revenue Service, About Form 8621, https://www.irs.gov/forms-pubs/about-form-8621

"When you leave Canada, you are considered to have sold certain types of property (even if you have not sold them) at their fair market value (FMV) and to have immediately reacquired them for the same amount. This is called a deemed disposition and you may have to report a capital gain (also known as departure tax)." — Canada Revenue Agency, Leaving Canada (emigrants), https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/individuals-leaving-entering-canada-non-residents/leaving-canada-emigrants.html

Practitioner note

The taxable account is where we spend the most pre-move hours, because every problem in it is cheap before the flight and expensive after: the departure tax makes fund sales free of extra Canadian cost, the basis election needs the deemed-disposition values it produces, and custodians answer honestly only when asked directly. Our one-line rule for departing clients: cross the border holding nothing fund-wrapped and nothing your broker won't service.

See also: For your RRSP after moving to the US, see your RRSP after moving to the US; and browse every cross-border tax topic guide, organized by situation.

Next step

Fairlight prepares the investment account triage — PFIC purge, custodian confirmation, keep/sell decisions priced against the departure tax, and the treaty basis election with the first US return. See cross-border pricing or book a call.