Tax Issues For Americans Moving To Canada: A Cross-Border Planning Guide

A US citizen takes a job in Toronto and, in the first week, opens a Canadian bank account and a TFSA. Two years later an accountant finds that the TFSA was never reported to the IRS, the Canadian ETFs inside it are PFICs, and the Roth IRA treaty election was never filed. None of it was deliberate. All of it was avoidable.

The tax issues for Americans moving to Canada differ from those of any other newcomer, because the United States taxes its citizens wherever they live. An American moving to Canada becomes taxable in Canada on worldwide income while remaining a US taxpayer on the same income. The Canada–US tax treaty coordinates the two systems, but only if you plan for the overlap.

Here is what our cross-border team at Altro LLP reviews with clients before and after the move.

Key takeaways

• Canada resets the cost base of most assets to fair market value when you become resident; the US does not.
• You still file Form 1040 every year. In Canada, the foreign tax credit usually beats the foreign earned income exclusion ($132,900 for 2026).
• TFSAs, RESPs and Canadian mutual funds and ETFs create US problems. RRSPs and RRIFs generally do not.
• US estate tax still applies worldwide. The 2026 basic exclusion is $15 million, but a non-citizen spouse changes the planning.
• If you are behind, the Streamlined Foreign Offshore Procedures are usually the first place to look.

Before the move: the planning window

The Canadian step-up on arrival

When you become resident, Canada deems you to have acquired most of your property at fair market value on that date, so it taxes only gains that accrue afterwards. The US keeps your original cost basis. If you bought US shares for US$100,000 and they are worth US$300,000 when you move, Canada taxes only growth above US$300,000; the IRS taxes the full gain whenever you sell.

Because no Canadian tax attaches to the pre-arrival gain, there is nothing to credit against the US tax on it. The planning is in the details: harvesting losses, choosing which positions to realize in which year, state tax on departure, and whether a Roth conversion makes sense before you become resident.

Part-year residency

In your arrival year, Canada taxes worldwide income only from the date you become resident; earlier income is generally taxed in Canada only if it is Canadian-source. Your US return covers the whole year. Document your start date (lease, work permit, provincial health card) for both returns.

You still file in the US every year

US citizenship-based taxation continues after the move. The IRS summarizes the obligations of US citizens and residents abroad, and the main decisions are below.

Foreign earned income exclusion or foreign tax credit?

The foreign earned income exclusion (Form 2555) shelters up to $132,900 of foreign earned income for 2026, but it does not cover investment income, and your remaining income is still taxed at the higher brackets. The foreign tax credit (Form 1116) is usually better in Canada: combined federal and provincial rates are generally higher than US federal rates, so Canadian tax typically offsets the US tax on the same income, and unused credits carry forward. Revoking the exclusion can also bar you from re-electing it for five years.

Illustrative example: a single filer earning C$200,000 of Ontario salary pays more Canadian tax on it than the US federal tax on the same amount in US dollars, so the foreign tax credit typically reduces US federal tax on that salary to nil. The exclusion would shelter only the first $132,900.

FBAR and Form 8938

If your non-US accounts together exceed US$10,000 at any point in the year, you must file an FBAR (FinCEN Form 114), including RRSP and TFSA accounts and accounts where you only have signing authority. Form 8938 (FATCA) is separate: for taxpayers living abroad, it is required above US$200,000 at year-end or US$300,000 at any time (single), or US$400,000 / US$600,000 (joint).

Canadian accounts that cause US problems

Canadian banks will open registered accounts for you without asking about US status. For a broader overview, see our article on financial considerations for Americans moving to Canada.

TFSA, RESP and PFICs

A TFSA is tax-free only in Canada. The IRS taxes its income every year, and many advisors treat it as a foreign grantor trust requiring Forms 3520 and 3520-A. We have long warned about this TFSA trap for US citizens. RESPs raise similar issues. Almost every Canadian mutual fund and ETF is also a PFIC; without an election, gains are taxed at the top ordinary rate plus an interest charge. Inpidual securities, or funds held inside an RRSP, are usually cleaner.

RRSP and RRIF

Under Rev. Proc. 2014-55, eligible US citizens receive treaty deferral on RRSPs and RRIFs automatically, so growth is not taxed in the US until withdrawal and Form 8891 is no longer required.

NIIT and the treaty

The 3.8% Net Investment Income Tax applies once modified adjusted gross income exceeds $200,000 (single) or $250,000 (joint). On August 31, 2026, the Federal Circuit held in Christensen and Estate of Bruyea that treaty-based foreign tax credits cannot offset it. We explain why we believe the court erred in our analysis of the NIIT treaty cases. Investment-heavy clients should now model NIIT as a real cost.

Your home in two tax systems

Canada’s principal residence exemption can shelter the entire gain on your home. The US exclusion is capped at $250,000 per person ($500,000 for qualifying joint filers), and the gain is measured in US dollars, so exchange-rate moves can create a “phantom” gain. Repaying a Canadian-dollar mortgage after the loonie weakens can also trigger a taxable US currency gain. Run the US numbers before you list a high-value home.

US retirement accounts after you move

A 401(k) or traditional IRA can generally keep growing without current Canadian tax; Canada taxes distributions when taken, with credit for US tax paid. A Roth IRA stays tax-free in Canada only if you file a one-time treaty election with the CRA by the due date of your first Canadian return, and contributions after you become resident can taint it.

Owning a Canadian corporation as a US citizen

A Canadian corporation more than 50% owned by US shareholders is a controlled foreign corporation. That means Form 5471, Subpart F income and, for tax years beginning after 2025, the “net CFC tested income” (NCTI) regime that the One Big Beautiful Bill Act substituted for GILTI. A holding company with passive investments can also be a PFIC. Our article on controlled foreign corporation rules explains the mechanics. Structure before you incorporate, not after.

Estate and gift planning for US citizens in Canada

US citizens remain subject to US estate tax on worldwide assets. Under the One Big Beautiful Bill Act, the basic exclusion is $15 million per person for 2026, indexed from 2027. The rules change sharply when one spouse is not a US citizen:

• No unlimited marital deduction for a non-citizen spouse unless assets pass through a qualified domestic trust (QDOT) or a treaty credit applies.
• Annual gift exclusion to a non-citizen spouse is $194,000 for 2026 (versus $19,000 for other recipients).
• Canada’s deemed disposition at death taxes accrued gains, subject to a spousal rollover. Treaty credit rules aim to prevent full double tax with US estate tax, but they do not always line up.

Wills must work in both systems, covering US-situs property, QDOT language, Canadian spousal trusts and, in Quebec, notarial form. Our tax planning for US citizens residing in Canada practice drafts these together.

If you are already behind

For non-willful filers who meet the non-residency test, the Streamlined Foreign Offshore Procedures require the last three years of returns, the last six years of FBARs and a Form 14653 certification, with no miscellaneous offshore penalty. See our guide to the streamlined filing compliance procedures. Canadian banks report US-person accounts under FATCA, so waiting rarely helps.

Expatriation: the last resort

Renouncing US citizenship ends future US filing, but it is permanent. You are a “covered expatriate” if your net worth is $2 million or more, your average annual net income tax for the prior five years exceeds $211,000 (2026), or you cannot certify five years of compliance on Form 8854. Covered expatriates pay an exit tax on unrealized gains above $910,000 (2026).

Under section 2801, US recipients of gifts or bequests from a covered expatriate pay 40% tax on amounts above $19,000 a year (2026). We cover this in section 2801 and Form 708. If your children live in the US, this can matter more than the exit tax.

Frequently asked questions

What are the main tax issues for Americans moving to Canada?

The main issues are dual filing, the mismatch in cost base on arrival, US treatment of TFSAs, RESPs and Canadian funds, and US estate tax. The treaty and foreign tax credits prevent most double tax, but only with planning.

Should a US citizen in Canada open a TFSA?

Usually not. The IRS taxes TFSA income annually and the account may trigger foreign trust and PFIC reporting. An RRSP or a non-registered account holding inpidual securities is usually more efficient.

Is my RRSP taxed by the IRS?

Not while the money stays in the plan. Rev. Proc. 2014-55 gives eligible US citizens automatic treaty deferral until withdrawal. You must still report the RRSP on your FBAR and, where thresholds are met, Form 8938.

Can I use the foreign earned income exclusion in Canada?

You can, but it is rarely best. Because Canadian rates are generally higher, the foreign tax credit usually eliminates US tax on employment income and also covers investment income, which the exclusion does not.

What happens to my Roth IRA when I move to Canada?

It can stay tax-free in Canada if you file a one-time treaty election with the CRA by the due date of your first Canadian return. Without it, Canada can tax the growth.