Canada remains a popular destination for Americans seeking a fresh start, a safer environment, or proximity to nature and family-friendly cities. But while moving to Canada from the US may seem relatively simple given the shared language and culture, there are important tax considerations for Americans to keep in mind.
Unlike most countries, the US taxes its citizens on their worldwide income regardless of where they live. So even after moving to Canada, you still have to file a US tax return every year. At the same time, you may also become a Canadian tax resident, meaning you could owe taxes in both countries if you’re not careful.
1. Understand US Tax Obligations Don’t End When You Move
The United States is one of the few countries that continues to tax its citizens even after they move abroad. That means:
- You still need to file a US federal tax return every year if your income meets the minimum threshold
- You must report worldwide income, even income earned in Canada
- You may also need to file additional forms like the FBAR (FinCEN Form 114) if your foreign bank accounts exceed $10,000 in total
- Form 8938 (FATCA) may also apply if your foreign assets cross certain thresholds
Failing to meet these reporting requirements can result in steep penalties, even if you don’t owe US tax due to foreign income exclusions or tax credits.
2. Know When You Become a Canadian Tax Resident
Canada determines tax residency based on facts and circumstances, not just immigration status. If you establish significant ties to Canada such as moving your home, family, bank accounts, or employment, the Canadian government may consider you a tax resident starting from the day you arrive.
Canadian tax residents must:
- File an annual T1 Income Tax and Benefit Return
- Report worldwide income just like in the US
- Pay provincial and federal income tax, which can be higher than US rates in some cases
If you’re unsure about your tax residency status in Canada, it’s wise to speak with a cross-border tax accountant to clarify your situation.
3. Avoid Double Taxation with the US-Canada Tax Treaty
The US–Canada tax treaty plays an important role in helping Americans avoid double taxation after moving to Canada. This treaty outlines which country has taxing rights over various types of income, including pensions, dividends, and capital gains, and helps ensure you aren’t taxed twice on the same income.
For example, if you’re receiving US Social Security benefits while living in Canada, they’re generally only taxable in the US. Additionally, if you pay Canadian income taxes, you may be able to claim a Foreign Tax Credit on your US tax return using Form 1116 to offset those taxes.
Alternatively, if you meet certain residence tests, you might qualify for the Foreign Earned Income Exclusion (Form 2555), which allows you to exclude up to $126,500 (2024 limit) of foreign earned income from US taxation. Understanding how the tax treaty works is essential for filing correctly and reducing unnecessary tax exposure.
4. Be Prepared for RRSPs, TFSAs, and Canadian Accounts
Once in Canada, you may invest in local retirement or savings accounts like:
- RRSP (Registered Retirement Savings Plan)
- TFSA (Tax-Free Savings Account)
- RESP (Registered Education Savings Plan)
These accounts receive favorable tax treatment under Canadian rules, but the US may treat them differently:
- RRSPs can be tax-deferred in the US if you make a proper treaty election
- TFSAs and RESPs are not tax-deferred under US law, meaning income inside these accounts may be taxable in the US
- You may also need to report these accounts on the FBAR and FATCA forms, depending on the balances
This is a common area of confusion, and many expats unintentionally create IRS issues by failing to disclose or account for these investments.
5. Watch Out for Capital Gains When Selling Property
If you sell property (such as your US home) after moving to Canada, the capital gains may be taxable in both countries.
- The US allows an exclusion of up to $250,000 ($500,000 if married filing jointly) of gain from the sale of your primary residence, but only if you meet the ownership and use tests
- Canada taxes the entire gain after you become a Canadian tax resident, unless you sell the property before your move
Coordination between both countries’ rules is essential to avoid unexpected tax bills. Speak with a cross-border tax advisor before selling any US property after moving to Canada.
6. Consider the Impact of Retirement Accounts and Social Security
If you have US-based retirement accounts like 401(k)s or IRAs, it’s important to understand how distributions from these accounts may be taxed once you move to Canada.
Under the US-Canada tax treaty, the United States generally retains the primary taxing rights on distributions from US-qualified retirement plans. However, Canada may also tax these amounts when they are received, depending on your residency status and the nature of the distribution.
In most cases, Social Security benefits are only taxed by the US, but if your overall income exceeds certain thresholds, Canada may consider them when determining tax obligations. Additionally, fluctuations in currency exchange rates can affect the value of your retirement distributions and ultimately impact your tax burden in both countries. Planning ahead can help you avoid surprises and minimize unnecessary tax exposure.
7. Understand Provincial Tax Differences
Canada’s provinces have their own tax rates, in addition to federal tax. Some provinces, like Alberta, have lower rates, while others like Quebec have higher personal income taxes.
- Your province of residence on December 31 determines your tax rate
- Moving between provinces mid-year may affect your overall tax bill
Knowing where you’ll live can help you estimate your Canadian tax burden more accurately before your move.
8. Avoid Common Triggers for IRS Audits
Moving abroad can sometimes trigger IRS scrutiny if you:
- Fail to file FBAR or FATCA forms
- Claim excessive Foreign Earned Income Exclusions without meeting eligibility
- Don’t report Canadian mutual funds or passive foreign investment companies (PFICs)
Stay compliant by tracking all foreign income and filing accurately. Mistakes are costly and may delay your ability to claim tax credits or refunds.
9. Plan Ahead for Currency Exchange and Reporting
When moving from the US to Canada, it’s important to consider how currency exchange and reporting rules can impact your finances and taxes in both countries. Exchange rates affect everything from income and retirement withdrawals to investment performance and everyday expenses.
Key considerations include:
- Income and expenses may fluctuate:
If you receive income in US dollars (such as wages, Social Security, or retirement distributions) but spend in Canadian dollars, changes in exchange rates can affect your purchasing power. - Tax reporting must be in local currency:
- The IRS requires all income and assets reported in US dollars.
- The CRA requires all income and financial information in Canadian dollars.
- You’ll need to use the correct exchange rate for the date of the transaction or an annual average, depending on the form.
- Timing conversions can impact taxes:
Strategically converting money when exchange rates are favorable may help reduce the appearance of capital gains or preserve more value when bringing funds into Canada. - Retirement account withdrawals and investments:
Currency fluctuations can increase or decrease the taxable amount when withdrawing from U.S.-based retirement accounts (like IRAs or 401(k)s) or selling investments.
10. Get Professional Help from an Expat Tax Accountant
Taxes become much more complex when you live in one country but remain a citizen of another. A cross-border move from the US to Canada requires careful planning and a clear understanding of both tax systems.
Consulting with a tax accountant who specializes in US expat tax and the US-Canada tax treaty can make a significant difference. A qualified advisor can help you determine your Canadian residency status, plan for tax-efficient income and asset reporting, and ensure that you file all the necessary forms with both the IRS and the CRA.
They can also guide you in making the most of available treaty benefits and help you avoid costly penalties or situations that result in double taxation. Having the right professional support ensures that your tax obligations are handled correctly, giving you peace of mind as you settle into life in Canada.
Moving to Canada from the US can offer an incredible lifestyle upgrade, but it also brings tax challenges that shouldn’t be overlooked. You’ll likely deal with taxes in both countries, which means understanding residency rules, reporting requirements, and the US-Canada tax treaty.
With the help of an expat tax accountant and a proactive strategy, you can minimize your tax liability, avoid penalties, and stay fully compliant. Whether you’re retiring, relocating for work, or planning a long-term stay, being prepared will make your transition smoother financially and legally.
