Considerations for Relocation Between the U.S. and Canada
Posted by: Linda LaChapelle, Director, Mobility Solutions
There are many similarities in how relocations are handled in Canada and the U.S., but there are also a number of key distinctions in the areas of home sale, mortgage, and tax and regulatory concerns that are important for organizations who are moving employees between the U.S. and Canada to be aware of. I’ll cover a few high-level common practices, but for more information about relocation practices in Canada, read our new Mobility Insights paper on Canada Cross-Border Moves.
Common Canadian Relocation Practices
Home sale practices in Canada range across several options, including a Guaranteed Plan Price, Marketing Assistance with Closing Costs, and Direct Reimbursement of all, or a portion, of sale expenses. Other considerations can include:
- Equity protection (sometimes referred to as “loss on sale”) may be offered to higher policy levels, and caps can assist with cost containment. In contrast to the United States, many companies in Canada include capital improvements in their equity loss protection calculation.
- Renter Lease Cancellation policies are typically similar to the United States (two months), except in Québec (which can be as long as nine months).
- A Miscellaneous Expense Allowance (MEA) assists with expenses that are not otherwise covered in the relocation policy. The first C$650 of the allowance is not taxable in Canada, though the employee is required to sign a document stating that C$650 of incidental expenses have been incurred. The remainder of the allowance is taxable. Most companies in Canada do not tax assist the MEA.
- Home finding assistance (for homes to purchase or to rent) is generally provided to all transferring employees.
- House-hunting trips are provided for the employee and spouse/partner, reimbursing airfare or mileage, depending on reasonable driving distances, lodging, and meals.
- Temporary living assistance is a common component for domestic Canadian policies, often varying by tier, homeownership type, and company need.
Within Canada, western provinces continue to experience the highest number of relocations and assignments. In the 2015 CERC Employee Relocation Policy survey, family issues and spouse/ partner career transition concerns surpassed housing issues as the top two reasons employees are likely to reject a domestic transfer. Despite this, only five percent of survey participants reported plans to increase spouse/partner career assistance provisions, and just as many reported plans to reduce assistance in this area.
Banks in Canada are governed by the Bank Act, and are not allowed to lend more than 80 percent of the purchase price on their own, and less than a 20 percent down payment will result in a high-ratio mortgage. The minimum down payment is five percent of purchase price as long as the home buyer is a Canadian citizen or permanent resident, and the lower the down payment, the higher the risk—and therefore, the higher the premium (like PMI in the United States).
Social Insurance Numbers (SIN) for Assignees
Assignees should apply for a Social Insurance Number (SIN) as soon as possible after they arrive in Canada. Their destination services provider (DSP), coordinated by the Cartus consultant, will assist in this process. The SIN is a nine-digit number that assignees will need to acquire in order to work in Canada, to apply for any government benefits, and to open a bank account.
Relocation Tax Considerations
There are significant differences between the United States and Canada regarding tax, particularly concerning relocation. The assignee should have a thorough briefing on tax implications, and tax preparation in both locations should be provided in both the year of assignment and subsequent year if there was any trailing liability. A major difference, too, is that in Canada, the majority of relocation services provided (benefits) are not taxable; whereas in the United States, many benefits are typically taxable.
Canada Relocation: Best Practice Recommendations
- The majority of Canadian companies offering home sale assistance provide a guaranteed plan. This is similar to an appraised value process in the U.S. (listing parameters, mandatory marketing period, Amended Value Program, etc.) if there is an accepted offer during the marketing period.
- Many companies have an incentive plan if the home sells prior to buyout.
- In Canada, home sale is not taxable for domestic moves and taxable per the IRS for cross-border moves, while in the United States it is taxable, so a tax-protected process is recommended.
- Mortgages can be ported from one home to another anywhere in Canada without a penalty. Mortgages in Canada are not tax deductible, so the goal is to use the prepayment to repay as soon as possible. Most mortgages can be ported, although this does depend on the lending institution.
- Assignees in Canada will need a SIN card to work in Canada or even to open a bank account, so that should be acquired as soon as possible.
For more information about relocation practices in Canada, read our new Mobility Insights paper on Canada Cross-Border Moves.