I'm American and Moving to Canada for the First Time. What Do I Need to Know?

Unlike a Canadian returning home, you have no departure tax problem (that is a Canadian tax concept for people leaving Canada, not entering it). What you have is a permanent US filing obligation that follows you to Canada and interacts badly with several Canadian accounts and investments. The FBAR triggers on day one if your Canadian accounts exceed $10,000 in aggregate. Canadian mutual funds are likely PFICs. The TFSA is probably a foreign trust. And the RRSP only preserves its tax deferral if you make the treaty election. None of these are optional, and none of them resolve themselves.

What US obligations follow me to Canada?

All of them. US citizens owe US tax on worldwide income regardless of residence. Moving to Canada does not change your US filing requirement, your FBAR obligation, or your Form 8938 threshold (though the threshold increases because you are now “living abroad”). You will file both a US return and a Canadian return every year, and the foreign tax credit mechanism on each side prevents most double taxation.

The obligations that are new to your move:

FBAR (FinCEN Form 114). Every Canadian bank account, RRSP, TFSA, RESP, and brokerage account is a foreign financial account for FBAR purposes. If the aggregate peak value exceeds $10,000 at any point during the year, you file. For most Americans in Canada, the FBAR is owed from year one. The FBAR vs Form 8938 guide covers the thresholds and mechanics.

Form 8938. The thresholds for Americans living abroad are higher than for US residents: $200,000 at year-end or $300,000 at any time (single), $400,000/$600,000 (married filing jointly). If your Canadian assets exceed those amounts, Form 8938 is owed.

Form 1116 (Foreign Tax Credit). Canadian tax rates are generally higher than US rates on the same income. You will claim a credit on your US return for the Canadian tax paid, limited by IRC 904(a). The excess Canadian tax becomes a credit carryforward.

What happens with the RRSP?

The CRA treats the RRSP as a tax-deferred account: contributions are deductible, growth is tax-free until withdrawal. The IRS does not recognize the RRSP as a tax-deferred account by default. Without the treaty election, the IRS would tax the annual growth (interest, dividends, capital gains) inside the RRSP on a current basis, even though no distribution occurred.

Article XVIII(7) of the Canada-US tax treaty allows you to elect to defer US taxation on RRSP income until you withdraw it. The election is made by attaching a statement to your US return. Once made, it carries forward and does not need to be renewed annually (though some practitioners attach the statement each year for clarity).

The RRSP contribution may or may not produce a US benefit. Canadian RRSP contributions are deductible on your Canadian return under ITA 146. On the US return, RRSP contributions are not deductible (there is no US provision for deducting a contribution to a foreign pension plan in the way IRC 219 covers an IRA). But the treaty election prevents the US from taxing the growth until withdrawal, which is the core benefit.

If you have a US employer in Canada that offers a group RRSP, the contribution may qualify under the treaty’s pension provisions, but the analysis depends on the structure.

What about the TFSA?

The TFSA is the problem child for Americans in Canada. The CRA treats it as a tax-free savings account: contributions are not deductible, but growth and withdrawals are tax-free. The IRS does not recognize it as tax-exempt and likely treats it as a foreign trust.

If the TFSA is a foreign trust, the obligations are:

• Form 3520 (Annual Return to Report Transactions With Foreign Trusts): filed with your US return, reporting contributions to and distributions from the trust
• Form 3520-A (Annual Information Return of Foreign Trust With a US Owner): due March 15, reporting the trust’s income

The annual growth inside the TFSA is taxable on your US return, even though you do not withdraw it. The TFSA offers zero US benefit and creates significant US compliance cost. The standard advice for Americans in Canada is not to open a TFSA, and if you already have one, to evaluate whether the Canadian tax-free treatment is worth the US compliance burden. The TFSA reporting cost guide works through the numbers.

What about Canadian mutual funds?

Canadian mutual funds and most Canadian-listed ETFs are likely passive foreign investment companies (PFICs) for US purposes. The PFIC regime imposes punitive tax treatment: gains are taxed at the highest ordinary rate plus an interest charge, unless you make a QEF (qualified electing fund) or mark-to-market election. Few Canadian funds provide the information needed for a QEF election.

The practical solution: invest in US-listed ETFs and stocks, not Canadian mutual funds. US-domiciled ETFs (those trading on NYSE or NASDAQ, organized under US law) are not PFICs. They are available through most Canadian brokerages, though some Canadian brokerages restrict access to US-listed products for regulatory reasons. Finding a Canadian brokerage that allows US-listed investments is a priority move.

RRSP accounts are partially shielded: the treaty election that defers taxation on RRSP income also defers PFIC consequences, so Canadian mutual funds held inside an RRSP are less problematic than those held in a non-registered account. But outside the RRSP, the PFIC rules apply fully.

What about the cost basis on my US investments?

When you become a Canadian tax resident, Canada generally treats you as having acquired your existing investments at their fair market value on the date you become resident. This is the “immigration step-up” under ITA 128.1(1)(b). For Canadian purposes, your cost basis resets to the FMV on arrival.

For US purposes, your cost basis does not change. It stays at whatever you originally paid.

This creates a permanent disconnect. If you bought shares for $50,000 USD and they were worth $80,000 USD when you moved to Canada, your US cost basis is $50,000 and your Canadian cost basis (ACB) is $80,000 converted to CAD. When you sell, the US gain is larger than the Canadian gain. The FTC mechanism handles the difference, but tracking parallel cost bases for every position is necessary.

What should I do next?

Before you move: understand that your US filing obligation does not end. Plan your Canadian investment strategy around US-listed securities. Do not open a TFSA. After you arrive: make the RRSP treaty election on your first US return, set up FBAR and Form 8938 tracking for your Canadian accounts, and find a tax preparer who handles both returns. If you have already been in Canada for a year or more without adjusting your US filings, the sooner you sort it out, the shorter the catch-up.

• Form 8938 vs FBAR: do I file both?, the two foreign-account filings from day one
• Is a TFSA a foreign trust for US purposes?, the reason not to open one
• Are Canadian mutual funds PFICs?, the investment constraint
• Does a Roth IRA stay tax-free in Canada?, the treaty treatment of your existing Roth
• Can I keep my US brokerage and IRA after moving to Canada?, the practical side of holding US accounts from Canada

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.