Moving to Canada from the U.S.: Tax Guide for Expats

Thinking about trading in your U.S. driver’s license for a Canadian one? You’re not alone. Each year, thousands of Americans head north for work, retirement, or simply a change in lifestyle. With its universal healthcare, high quality of life, and proximity to the U.S., Canada is a top choice for relocation.

But before packing your bags, it’s essential to understand one thing: taxes don’t disappear when you cross the border. U.S. citizens moving to Canada face dual filing requirements, complex residency rules, and potential double taxation if they don’t plan carefully. This guide walks you through the key tax implications of moving to Canada, helping you stay compliant with both the IRS and the Canada Revenue Agency (CRA).

Residency for Tax Purposes

In Canada: Your tax residency isn’t based on immigration status but on where your significant ties are. The CRA looks at factors like:

• Where your home and family are located
• Canadian bank accounts and driver’s license
• Length of time spent in Canada

Depending on your circumstances, you may be classified as a:

• Resident – taxed on worldwide income
• Non-resident – taxed only on Canadian-source income
• Deemed resident or non-resident – under special treaty rules

In the U.S: Unlike Canada, the U.S. taxes are based on citizenship, not residency. Even after moving, you must still file a U.S. tax return each year.

U.S. Tax Obligations After Moving

Living abroad doesn’t exempt you from U.S. taxes. As a citizen, you’re still required to file:

• Form 1040 – annual U.S. income tax return
• FBAR (FinCEN 114) – if your foreign bank accounts exceed $10,000 at any time during the year
• FATCA (Form 8938) – for foreign assets above IRS thresholds

Failing to report foreign assets is one of the most common mistakes expats make, and the penalties can be steep.

Canadian Tax Filing Requirements

As a Canadian resident, you must file a T1 Income Tax Return each year and report worldwide income. Some key points:

• The Canadian tax year is January 1 to December 31 (same as the U.S.)
• Federal and provincial taxes apply, with combined rates that may exceed U.S. rates in certain provinces
• You may benefit from deductions and credits unique to Canada, such as the GST/HST credit and medical expense credit

Tax Treaties & Credits

The U.S.-Canada Tax Treaty helps prevent double taxation. Key provisions include:

• Foreign Tax Credit (Form 1116) – lets you offset U.S. tax with Canadian taxes paid
• Tax Treaty Benefits – cover pensions, Social Security, and investment income
• Tie-breaker rules – determine residency when both countries claim you as a tax resident

Planning ahead ensures you’re not taxed twice on the same income.

Impact on Retirement & Investments

Retirement accounts are especially tricky when moving across the border:

• 401(k) and IRA – You can keep them, but withdrawals may be taxed differently under treaty rules
• Social Security – Taxable in Canada but coordinated by treaty to avoid double taxation
• Canadian accounts – RRSPs are recognized by the IRS as tax-deferred; TFSAs are not (they generate U.S. reporting requirements)

Estate & Gift Taxes

Canada does not levy estate or gift taxes, but the U.S. does. U.S. citizens remain subject to U.S. estate tax on worldwide assets. On the Canadian side, death triggers deemed capital gains, which can also create a tax bill. Cross-border estate planning is crucial for high-net-worth families.

Common Mistakes to Avoid

• Not closing U.S. state residency – Some states (like California) will keep taxing you until you officially cut ties.
• Forgetting FBAR and FATCA reporting – Even small Canadian accounts count.
• Ignoring the tax treaty – Misreporting pensions or investments can lead to unnecessary double taxation.

When to Consult a Tax Professional

You should seek professional advice if you have:

• Dual citizenship
• Complex investments or business interests
• Large retirement or estate assets
• Plans to split time between the U.S. and Canada

If you are planning on moving to Canada from the US, reach out to us today. Watter CPA stands ready for expert cross-border tax guidance in order to establish full compliance and prevent double taxation.

FAQs

• Do I have to pay U.S. taxes if I live in Canada?
• How do I become a tax resident of Canada?
• Will moving to Canada affect my Social Security?
• Can I keep my 401(k) or IRA after moving to Canada?
• Do I have to pay taxes twice if I move to Canada?