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

When do I become a Canadian tax resident?

Most people become Canadian tax residents when they move and establish significant residential ties in Canada, usually on the first day they live there. A home, spouse or partner, and dependants are the main ties; an immigration document alone does not set the tax date. The date can differ from the day you cross the border if your household moves in stages (CRA: newcomers).

Keep a timeline of when you, your household and your belongings moved, when each home became available, and where you worked. If ties remain in both countries, residency can require a treaty analysis. See Canadian tax residency for the full test.

If I move to Canada, do I still have to file US taxes?

Moving does not by itself end US filing. US citizens remain subject to US tax on worldwide income, and green card holders generally remain US tax residents until their status ends under US rules or they properly claim treaty residence elsewhere (IRS: citizens and residents abroad; IRS: residency ending dates).

Foreign tax credits and the foreign earned income exclusion may reduce US income tax, but neither removes a filing requirement by itself. Canadian accounts can also trigger US information returns. See Americans living in Canada for annual filing and reporting.

Which returns do I file in each country for the year I move?

Start with the date Canadian tax residence began and whether US tax residence ended. Those dates determine which parts of the year each country taxes as a resident (CRA: completing a newcomer return; IRS: dual-status individuals).

If US residence came from days spent there, an earlier ending date generally requires a foreign tax home and closer connection for the rest of the year, no US residence the next year, and a signed, dated statement attached to the US return. Otherwise, residence can continue through year-end (IRS: residency ending dates). A dual-status year means US resident for part of the year and nonresident for the rest.

If you are self-employed, check whether the US–Canada agreement assigns social-security contributions on your work to the US or Canadian system and obtain a certificate of coverage (IRS: self-employment tax; SSA: agreement). See Americans living in Canada for ongoing filing.

The Canadian return's first-year details, benefits and foreign-property reporting exception belong in First year as a Canadian tax resident. Gather both countries' prior returns, payroll slips, brokerage records, and the dates income was earned before preparing either move-year return.

What cost does Canada give investments and property I bring with me?

Canada generally treats property you already own as sold and immediately reacquired at fair market value when you become resident. For covered property, that value becomes its Canadian tax cost for a later sale. Exceptions include taxable Canadian property and certain pension rights. A qualifying returning resident can elect in writing under subsection 128.1(6)(c), by the Canadian filing due date for the return year, to adjust the arrival cost of eligible property held throughout the absence (Income Tax Act, section 128.1; CRA: newcomer property).

For US citizens and green card holders whose US tax residence continues, moving to Canada generally does not change US adjusted basis. A later sale can therefore produce different gains in the two countries (IRS: Publication 551). If ending a long-held green card makes you a covered expatriate, separate US deemed-sale rules may apply; see US exit tax (IRS: Form 8854 instructions). Save dated account statements and a supportable valuation for real estate or private shares at the residency date. Record exchange rates too: Canada calculates in Canadian dollars, while the US return uses US dollars.

Will my US state keep taxing me after I leave?

Possibly. State rules differ, and leaving the country does not prove that state residence ended. A state may also tax income from property or work sourced there after you become a nonresident.

California, for example, treats someone domiciled there but away for a temporary purpose as a resident. A California part-year resident reports worldwide income during the resident period and California-source income afterward; nonresidents can still have California tax on rent or a real-property sale (California FTB: residency terms; California FTB: part-year and nonresident). Check the rules of your own state and retain evidence of the move, including housing, family, work and licensing changes.

Can I use the foreign earned income exclusion in my first year in Canada?

Possibly, if you remain a US citizen or resident alien, have a foreign tax home and qualifying earned income, and meet an applicable residence or presence test. US citizens may use either test; resident aliens may use the bona-fide-residence test only if they are citizens or nationals of a country with a US income tax treaty (IRS: bona fide residence test). The physical-presence test requires 330 full days abroad in a consecutive 12-month period; the bona-fide-residence test requires an uninterrupted period that includes an entire tax year. A move partway through the year often means the test is completed after the year ends (IRS: Publication 54).

The exclusion is an election with consequences: you cannot also claim a US foreign tax credit for Canadian tax on the same excluded income (IRS: Publication 54). Compare the credit and exclusion before electing. The ongoing comparison is covered in Americans living in Canada.

I have a green card: will moving to Canada trigger the US exit tax?

The move alone does not trigger the US exit tax. The question arises if you end US permanent-resident status, including by claiming residence in Canada under the treaty and notifying the IRS, and you were a long-term resident under the expatriation rules (IRS: Form 8854 instructions).

A long-term resident generally held a green card in at least eight of the last fifteen tax years, with specified treaty-resident years excluded from that count. Even then, the exit tax depends on the covered-expatriate tests; Form 8854 reporting can apply when long-term status ends. Do not claim treaty nonresidence or surrender a long-held card without checking the date, prior compliance, assets and filing consequences. See US exit tax for the tests and Form 8854.

What happens to my 401(k), IRA and Roth IRA when I move?

The accounts need separate Canadian and US review before a withdrawal, transfer or new contribution. A Roth IRA needs attention in the move year: its owner seeking treaty deferral of income accruing inside it should mail the CRA a signed election letter covering each Roth IRA by the Canadian filing due date for the year residence began. The election is one-time and irrevocable. Contributions after Canadian residence begins can end deferral for later income (CRA: Roth IRA folio).

Keep year-end and arrival-date balances, account type, contribution and withdrawal history, and plan documents. The treatment of traditional 401(k) and IRA withdrawals, transfers to an RRSP, and the Roth election is in US retirement accounts in Canada. If you open Canadian registered accounts, see Canadian registered accounts on a US return.

Should I sell my US home before I move, or keep or rent it?

The answer turns on sale timing, US home-sale eligibility, Canadian residence, and whether the home becomes a rental. Compare the after-tax result of each plan before signing a sale or lease.

If you plan to rent the home, record whether rental use starts before or after Canadian residence begins. A later conversion can cause a separate Canadian change-of-use event; keep a value for that date as well as the arrival date (CRA: principal residence folio).

The US home-sale exclusion generally requires owning and using the property as a main home for at least two of the five years before sale, with other conditions. Moving out can eventually cause the use test to expire, and depreciation allowed or allowable for rental use cannot be excluded (IRS: Publication 523). For ongoing rental filings, US citizens and continuing resident aliens can see US rental property taxes and Americans living in Canada; US nonresidents can see Canadians with US rental property.

Example

Illustrative only. Assume exchange rates are equal throughout solely to show the different cost bases; no tax is calculated. A US citizen bought shares for US$100,000, moved to Canada when they were worth US$150,000, and later sold them for US$170,000. Assume the shares qualify for Canada's arrival-date cost rule and there are no other basis changes.

The Canadian gain is C$20,000, measured from the arrival value. The US gain is US$70,000, measured from the original cost. Real exchange rates and transaction costs can change the gains; tax credits can change tax owed. The mover should save the purchase record and an arrival-date statement before either return is prepared.

Different for you?

• Your family, home or work moved on different dates: determine the Canadian residency date in Canadian tax residency.
• You need to prepare your first Canadian return or apply for benefits: use First year as a Canadian tax resident.
• You are a US citizen or continuing green card holder: plan ongoing returns and account reporting in Americans living in Canada.
• You may end a long-held green card or have substantial assets: review US exit tax before changing status; gather green card dates, asset values and prior US returns.
• You have retirement accounts or plan withdrawals: review US retirement accounts in Canada before a transfer or Roth election deadline.
• You have stock options or RSUs from a US job: keep grant, vesting and exercise records and workdays in each country; see Working across the border (CRA: security options).
• You own a US LLC or other business: bring agreements and valuations to cross-border tax. A US LLC owner should also see Canadian owner of a US LLC.
• Your spouse is a US nonresident alien at year-end: see Marriage to a nonresident for US filing choices (IRS: nonresident spouse).