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Here’s why mutual funds don’t travel well across international borders—and what Canadian investors can do instead.
If you’re planning a move from Canada to another country, such as the United States, and you currently hold Canadian mutual funds in a non-registered (taxable) investment account, it’s time to hit pause and take a closer look. While mutual funds are often seen as safe, diversified and familiar investment choices, they can become problematic—and costly—when international borders come into play. Here’s what Canadian investors need to know about moving mutual funds to another country.
Mutual funds are built to function within the regulatory framework of their country of origin—which is perfectly fine until your country of residence changes. Once that happens, those same mutual funds can quickly turn into financial liabilities.
When you update your account address to reflect your new country, many financial institutions and online brokers will freeze the account or restrict it to “sell only” transactions. That means no rebalancing, no professional management and no ability to adjust to evolving market conditions.
In a worst-case scenario, the institution may require you to transfer the account to a financial institution in your new country within 30, 60 or 90 days—or it may liquidate the holdings immediately and send you a cheque. This can create major issues if it triggers the realization of previously unrealized capital gains, leading to an unexpected—and often significant—tax bill.
Here’s a breakdown of how mutual funds are treated depending on the type of account where they’re held, especially as you move across borders.
If you move from Canada to another country, your RRSP stays in Canada. This means the mutual funds inside the RRSP can remain as well. However, if you try to purchase new mutual funds within your RRSP while having a U.S. address on file with the financial institution where the account is held, you’ll likely be restricted or denied from doing so due to regulatory limitations tied to your non-Canadian residency.
Moving to the U.S. with a TFSA is an entirely different issue. U.S. citizens should generally avoid holding TFSAs, as the Canada–U.S. tax treaty does not recognize them for U.S. tax purposes. In short: while the TFSA can technically remain in Canada, the tax reporting and compliance burden in the U.S. often outweighs the benefits.
Non-registered (taxable) accounts present the biggest challenge. These accounts typically cannot stay with you when you change countries of residence, for a variety of reasons: tax reporting, rebalancing restrictions and residency-based limitations. For example, as a Canadian resident, I can’t open or maintain a U.S.-based non-registered brokerage account. Likewise, if you move to the U.S., your Canadian non-registered account (and the mutual funds inside it) may need to be restructured, as mutual funds are country-specific investment vehicles.
The same rules apply in reverse: U.S. retirement accounts like the IRA and 401(k) stay in the U.S., but U.S. non-registered (taxable) accounts typically need to be closed or adjusted if you’re no longer a resident.
To avoid issues with moving mutual funds out of Canada, contact the financial institution currently holding your mutual funds and ask whether they can be converted into exchange-traded funds (ETFs) before your relocation. If the switch can be made within the same fund family—via a fund-to-fund transaction—it may avoid triggering a taxable event.
Why is this important?
But not all mutual funds have ETF equivalents, and not all institutions support these conversions. That’s why the first call you make should be to the financial institution holding your investments.
If your mutual funds can’t be switched to ETFs, you’re left with two less-than-ideal alternatives:
1. Leave the account where it is (if allowed).
Some Canadian investors attempt to leave their accounts untouched at the original institution. While this may be temporarily possible, the account is usually frozen or significantly restricted. Imagine leaving a beloved pet behind when you move—technically it’s still yours, but without daily care and oversight, it won’t thrive. Similarly, an unmanaged account left behind can’t adapt to your changing financial needs or risk profile.
2. Sell and trigger a tax event.
The other option is to sell the mutual funds, realize gains or losses, pay any resulting tax, and rebuild your portfolio with investments suited to your new country of residence. This route should always be taken with guidance from a cross-border financial advisor who can help you rebuild efficiently and minimize your tax burden.
Consider Harper, a successful Canadian professional who relocated to the U.S. for a promotion. After updating his address with his Canada-based financial advisor, Harper discovered that his investment accounts were frozen. The advisor warned that if the accounts weren’t moved promptly, they would be liquidated.
Unfortunately, Harper’s investments were sold before he could act, leading to unexpected capital gains and a significant tax bill. This financial loss could have been entirely avoided with proper planning.
If you’re a Canadian moving to the U.S. and you continue holding Canadian mutual funds or ETFs in a non-registered account, you could fall into the Passive Foreign Investment Company (PFIC) trap.
PFICs are a particularly complex area of cross-border tax. For U.S. individuals, PFICs generally include non-American mutual funds and Canadian ETFs. These investments are subject to complex reporting requirements under Internal Revenue Service (IRS) Form 8621—potentially one form per fund, per year, even if no transactions occur. This can lead to hours of paperwork, steep accounting fees and punitive tax treatment if not handled correctly.
The solution? Avoid Canadian mutual funds and ETFs entirely once you become a U.S. tax resident. Learn more about the PFIC trap on my blog at Snowbirds Wealth Management.
While all of this may sound like a minefield, there are clear solutions—especially if you act before your move. With the right strategy and professional guidance, you can:
If you’re holding mutual funds and planning a move between the U.S. and Canada, don’t wait until after your relocation to address your investments. The best-case scenario is to convert your mutual funds to ETFs before your move, ideally in a way that preserves your gains and avoids triggering capital gains tax.
Once that’s done, a clean transfer can be made to a cross-border financial advisor who can ensure your investments continue to grow—on both sides of the border. Plan early. Act wisely. Avoid costly surprises. Because when it comes to cross-border investing, timing isn’t everything—it’s the only thing.
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