Moving from Canada to the US: Tax Steps in Both Countries

When do I become a US tax resident?

US tax residency can start before you receive a green card. You generally become a resident when you meet either the green card test or the substantial presence test; a TN visa alone does not decide your tax status (IRS Publication 519).

The substantial presence test counts at least 31 US days in the current year and 183 weighted days over the current and previous two years: all current-year days, one-third of the preceding year's days, and one-sixth of the year before that. If you meet it, residency generally starts on your first US day that year, including an earlier visit, rather than the day you crossed the border to move. You may exclude up to 10 earlier days from the starting date if your tax home and closer connection were in Canada on those days; the days still count toward the presence test, and an IRS statement is required (IRS Publication 519; IRS residency dates).

If you meet only the green card test, residency generally starts on your first day physically present in the US as a lawful permanent resident. If both tests apply, use the earlier starting date. A late-year arrival that meets neither test may leave you a non-resident for the year unless a first-year choice applies; the choice has conditions and is covered in First year as a US tax resident (IRS residency dates).

When do I stop being a Canadian tax resident?

Canadian tax residency generally ends when you leave to settle in the US and sever your Canadian residential ties, not when a TN visa or green card is issued. The CRA says the usual non-resident date is the latest of your departure, your spouse's or dependants' departure, and the date you become resident where you settle (CRA: Leaving Canada).

Keeping a home or close family in Canada can change that answer. If both countries treat you as resident under their own laws, Article IV of the Canada–US treaty tests where you have a permanent home, then your closer personal and economic ties, habitual abode, and citizenship. A US treaty position that treats a dual resident as Canadian resident generally calls for Form 8833 disclosure (IRS: Form 8833). The underlying ties and whether Form NR73 helps are covered in Canadian tax residency.

Which returns do I file for the year I move?

You may need returns in both countries. Canada taxes worldwide income while you are Canadian resident and generally only Canadian-source income afterward. If you are not a US citizen, US worldwide-income reporting generally starts on your US residency date; a US citizen generally reports worldwide income for the full year (CRA: Leaving Canada; IRS Publication 519; IRS: US citizens abroad). If both countries tax the same income, treaty rules and foreign tax credits may reduce the overlap; see Foreign income on a US return (Canada–US treaty, Article XXIV).

Keep a dated travel log, proof of the move and family move, final Canadian and first US pay slips, Canadian account statements, and values for property held on the Canadian departure date. Canadian bank and investment accounts may also trigger additional US account-reporting duties; see Foreign account reporting.

Will Canada charge departure tax, and can the US tax that gain later?

Canada treats many assets, including non-registered investments, as sold and immediately reacquired at fair market value when residency ends. That can create a Canadian gain without cash from an actual sale. Canadian real property and listed registered plans are among the exceptions (CRA: Dispositions for emigrants).

If you lived in Canada for only a short period, property you owned before becoming resident or inherited later may also be excluded. Check Leaving Canada before assuming an investment is departure-taxed (CRA: Dispositions for emigrants).

Article XIII(7) of the Canada–US treaty may align the countries' treatment of departure-taxed property. The election requires a net gain from deemed dispositions and consistent treatment of deemed gains and losses in that tax period. If you are not yet subject to US tax on the disposition, it can give US basis at departure-date fair market value; if you already are, it can accelerate US gain or loss and involve foreign tax credits (US Treasury explanation). The individual elects on a timely US return for the first tax year ending after the move, attaching Form 8833 listing each property and records of Canadian gain and value (IRS Revenue Procedure 2010-19). Separately, to defer paying Canadian departure tax, sign and file Form T1244 by April 30 of the following year; security may be needed (CRA: Dispositions for emigrants). Review the full asset list and both residency dates before electing. For the Canadian computation and forms, see Leaving Canada.

Canadian mutual funds and ETFs can raise a separate US reporting problem even when departure tax is handled; see Funds bought outside the US.

Should I cash out my RRSP before moving?

An RRSP does not have to be cashed out simply because you move. It is excluded from Canada's departure deemed disposition, and eligible US residents receive treaty deferral on undistributed RRSP income under IRS Revenue Procedure 2014-55 (CRA: Dispositions for emigrants).

A taxable withdrawal before Canadian residency ends goes on your Canadian resident return; withholding may be less than the final tax (CRA: RRSP withdrawal tax rates). After Canadian residency ends, an ordinary cash-out generally faces Canadian non-resident withholding at 25%; if US residency has begun, it may also be US taxable. The treaty's lower Canadian rate covers qualifying periodic pension payments, not an ordinary early RRSP cash-out (CRA: Periodic pension payments). A section 217 Canadian return may recover some withholding (CRA: T4058). Compare the dates before withdrawing; see Canadian registered accounts on a US return for US treatment.

What should I do with my TFSA or FHSA?

Review both accounts before moving; their Canadian tax advantages do not automatically carry into US tax law. Canada lets a non-resident keep a TFSA and withdraw from it without Canadian tax, but a non-resident contribution generally incurs 1% for each month it remains in the account. A full non-resident year creates no new TFSA room (CRA: Non-resident TFSAs).

The US treatment of a TFSA or FHSA depends on its income, assets, and possible reporting duties. Review Canadian registered accounts on a US return before transferring or withdrawing.

Should I sell my Canadian home before or after moving?

Moving alone does not sell your Canadian home for Canadian tax. You can instead elect on Form T2061A, attached to your departure-year return, to include Canadian real property in the deemed disposition (CRA: Dispositions for emigrants; Form T2061A). Selling before Canadian departure avoids Canada's non-resident sale process; selling afterward can require that process and a Canadian return. If you rent the home, a change of use may cause a separate deemed sale; a signed subsection 45(2) election letter filed with that year's Canadian return may defer it (CRA: Principal residence). Compare the Canadian departure date, US residency start date, and closing date before choosing when to sell.

In Canada, report the sale and designate the home for eligible principal-residence years; other years may leave a taxable gain (CRA: Principal residence). A sale after US residency starts may also create a US gain. For a qualifying non-US citizen, Article XIII(6) of the Canada–US treaty sets a minimum US basis at the home's fair market value when Canadian residency ended; the US home-sale exclusion may also apply if its conditions are met (IRS Publication 523). Keep purchase, departure-value, improvement, occupancy, and sale records in both currencies. See Non-residents selling Canadian property and Property abroad for detailed filings.

What happens to CPP, OAS, and a Canadian pension?

A move does not erase CPP contributions. OAS payments abroad depend on Canadian residence history or qualifying time under the Canada–US social security agreement and may stop after a long absence if you do not qualify (Service Canada: Receiving OAS). The agreement can help someone qualify when time in one country alone is insufficient; Service Canada accepts Canadian benefit applications from US residents. If you contributed only to QPP, check Quebec's plan separately; the federal agreement covers CPP and OAS (Service Canada: United States agreement).

Under Article XVIII of the Canada–US treaty, Canadian social security benefits paid to a US resident are taxable only in the US and are treated there like US Social Security benefits. For other Canadian pensions, the US may tax a US resident and Canada may also tax Canadian-source payments; Canada's tax on a qualifying periodic pension payment is capped at 15%. Lump sums can follow different withholding rules (Canada–US treaty). Give pension payers your new address and residency status, and keep the NR4 slips they issue (Service Canada: Pensions abroad).

Example

Illustrative only; all amounts below are Canadian dollars, and no tax is calculated. Alex is not a US citizen, leaves Canada on July 1, settles in the US, and becomes a US tax resident that day. Alex bought shares after becoming a Canadian resident for C$40,000. They are worth C$100,000 on departure. Alex also has an RRSP and a Canadian home.

Canada may deem the shares sold for C$100,000, creating a C$60,000 gain on the departure return. If Alex makes the treaty election on a timely US return and later sells the shares for C$120,000, the departure value can set US starting cost; the C$20,000 difference is only an illustration before converting the US basis and sale proceeds separately to US dollars (IRS Revenue Procedure 2010-19; IRS: Foreign currency). The RRSP and home are not included in that departure sale. Alex must also file Form T1161, listing the shares and home but excluding the RRSP (Form T1161). If the home was Alex's Canadian principal residence, Article XIII(6) may give it a separate US basis floor at its departure-date fair market value. Alex should keep the home's purchase and departure-value records.

Different for you?

• Your spouse or home stays in Canada, or you claim treaty residence: review Canadian tax residency and get cross-border tax help before filing.
• You have large unrealized gains, stock options, or want to defer departure-tax payment: see Leaving Canada and get cross-border tax help before making elections or arranging security.
• You keep a Canadian home and rent it out: see Non-resident landlords.
• You sell a Canadian home after moving: see Non-residents selling Canadian property and Property abroad.
• Your spouse remains a US non-resident: see Married to a non-resident before choosing a joint US return.
• You still own a Canadian corporation: see US owners of foreign companies and get cross-border tax help.
• You have Canadian bank accounts, TFSAs, or investment funds: see Foreign account reporting, Canadian registered accounts, and Funds bought outside the US.