Moving from Canada to the US: Tax Planning Checklist Before You Cross the Border
The tax consequences of moving from Canada to the US begin before you leave. Canada’s departure tax, the timing of your residency change, the treatment of your RRSP, TFSA, and principal residence, and the reporting obligations that start the moment you become a US person all require advance planning. Most of the meaningful planning happens in the 6 to 12 months before the move. Once you have crossed the border and established US residency, most options are gone.
Before leaving Canada, a departing resident should: (1) calculate the departure tax exposure (deemed disposition of non-exempt property at FMV under ITA 128.1(4)) and consider strategies to reduce it (crystallize losses, maximize the principal residence exemption, use the lifetime capital gains exemption for QSBC shares, consider the security election for deferral), (2) close or plan for the TFSA (US does not recognize it; annual US tax on earnings), (3) plan for the RRSP (treaty deferral is automatic since Rev. Proc. 2014-55, but no new contributions will be possible after departure unless Canadian earned income continues), (4) file a departure return by April 30 (or June 15 if self-employed) of the year after departure, (5) establish the date of departure clearly (cease Canadian ties: sell/rent the home, cancel health insurance, close Canadian bank accounts or document reduced ties), and (6) understand US reporting obligations that begin on day one (FBAR, Form 8938, Form 5471 if owning 10%+ of a Canadian corporation, Form 8621 for PFICs).
What is the departure tax, and how do you minimize it?
The departure tax under ITA 128.1(4) deems you to have sold most of your property at FMV immediately before departure. The gain is taxed on your terminal return. Property excluded from the deemed disposition includes Canadian real estate (taxable Canadian property), registered plans (RRSP, TFSA, RESP), and property used in a Canadian business through a permanent establishment.
To minimize the departure tax:
Harvest capital losses before departure. Sell investments with unrealized losses before the departure date. The capital losses offset capital gains triggered by the deemed disposition. Losses cannot be carried forward from Canada to the US (they stay on the Canadian side), so use them before you leave.
Crystallize gains at low rates. If you are in a low-income year (perhaps because you have stopped working in Canada before starting your US job), the capital gains from the deemed disposition will be taxed at a lower marginal rate. Timing the departure to fall in a low-income year can save tens of thousands of dollars.
Use the lifetime capital gains exemption (LCGE). If you own qualified small business corporation (QSBC) shares, the first $1,250,000 (2025) of capital gains on the deemed disposition is exempt from tax. Make sure the shares qualify for the LCGE before departure (the holding period, asset, and active business tests must be satisfied at the time of departure).
Designate the principal residence. If you are selling or keeping a Canadian home, designate it as your principal residence for all years of Canadian ownership. The principal residence exemption can shelter all or most of the gain.
Consider the security election. If the departure tax is large and you do not want to liquidate investments to pay it, post security with the CRA under ITA 220(4.5) and defer the tax until the property is actually sold.
What should you do with the TFSA?
The TFSA is tax-free in Canada. But the US does not recognize the TFSA as a retirement plan or a tax-exempt account. For a US person, the investment income inside the TFSA (dividends, interest, capital gains) is taxable annually on the US return. The TFSA may also be treated as a foreign trust, potentially requiring Forms 3520 and 3520-A.
The practical advice: withdraw the TFSA balance before departure (or shortly after, while still filing a Canadian return). Reinvest the funds in a US-tax-friendly account (a US brokerage account, or maximize RRSP contributions if contribution room exists). Keeping the TFSA open after becoming a US person creates ongoing US reporting obligations with no tax benefit.
What should you do with the RRSP?
The RRSP is treaty-protected. Under Article XVIII of the US-Canada treaty, a US person can defer US tax on income accruing inside the RRSP (and this deferral is now automatic since Rev. Proc. 2014-55). Keep the RRSP. Do not withdraw it on departure (withdrawals are taxable income in Canada at up to 30% withholding for non-residents).
After departure, you cannot make new RRSP contributions unless you continue to have Canadian earned income (which is unlikely if you are working in the US). The RRSP will sit as a frozen, growing account until you withdraw (subject to Canadian withholding, reduced to 15% by the treaty for periodic RRIF payments) or convert it to a RRIF at age 71.
Report the RRSP on the FBAR and Form 8938 every year you are a US person.
What about Canadian mutual funds (PFICs)?
Many Canadian mutual funds and ETFs that are not listed on a US exchange are classified as Passive Foreign Investment Companies (PFICs) under IRC 1291. PFICs are subject to a punitive US tax regime: excess distributions are taxed at the highest ordinary income rate plus an interest charge, retroactively.
Before departure, consider selling Canadian mutual funds and ETFs held in non-registered accounts and replacing them with US-listed equivalents. The sale triggers the Canadian departure tax anyway (deemed disposition at FMV), so you are not creating an additional Canadian tax event. But by selling before the move, you avoid the PFIC regime on the US side.
If you keep Canadian mutual funds after becoming a US person, you can make a Qualified Electing Fund (QEF) election or a mark-to-market election to mitigate the PFIC penalty, but both require annual US reporting and may result in current taxation of unrealized gains.
What US reporting starts on day one?
The moment you become a US person (through a green card, substantial presence, or a treaty tiebreaker election), the following reporting obligations begin:
- FBAR (FinCEN 114): Report all foreign financial accounts with an aggregate balance exceeding $10,000 at any point during the year. This includes Canadian bank accounts, brokerage accounts, RRSPs, RRIFs, and TFSAs.
- Form 8938 (FATCA): Report specified foreign financial assets exceeding the reporting threshold ($200,000 at year-end or $300,000 at any point during the year, for taxpayers living abroad; $50,000/$75,000 for US residents).
- Form 5471: If you own 10% or more of a Canadian corporation (the private company from the example above), file Form 5471 annually. Penalties for non-filing: $10,000 per form per year.
- Form 8621: If you hold PFICs (Canadian mutual funds), file Form 8621 for each PFIC.
- Form 3520/3520-A: If you hold a TFSA or other arrangement the IRS may consider a foreign trust.
These filings start in the first year of US residency. The penalties for non-filing are severe (often $10,000+ per form), and many new US immigrants are unaware of the obligations until years later when the penalty exposure has compounded.
When should you establish the departure date?
The departure date determines when the deemed disposition occurs and which tax year the departure tax falls in. Canada looks at a collection of factors to determine when residency ceases:
- Selling or renting out the Canadian home
- Moving belongings out of Canada
- Spouse and dependents leaving Canada
- Cancelling Canadian health insurance (OHIP/MSP)
- Closing Canadian bank accounts (or reducing them to minimal operational accounts)
- Cancelling Canadian club memberships, subscriptions, and professional licenses
The more clearly you sever residential ties, the cleaner the departure date. If you maintain significant ties (keep the house, keep the health insurance, spouse stays in Canada), the CRA may argue that you have not ceased Canadian residency, and you will be taxed as a Canadian resident on your worldwide income even after you start living in the US.
The Cross-Border Assessment is a fixed $250. You get a written, CPA-reviewed pre-departure plan covering departure tax minimization, account restructuring, and US reporting obligations.
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Yarik Yarosh, CPA. "Moving from Canada to the US: Tax Planning Checklist Before You Cross the Border." Blue Cloud CPA, September 4, 2026. https://bluecloudcpa.com/guides/canadian-moving-to-us-tax-planning-before-move
This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.