Moving From Canada to the US: Tax Implications and Checklist

Moving from Canada to the US isn’t one tax event. It’s a sequence. Before you leave, you decide what to do about the departure tax, your RRSP, your TFSA and any Canadian mutual funds. In the move year, Canada treats you as selling most of your property on the day you stop being a resident, you file a final Canadian return, and you file your first US return. After the move, US reporting on your Canadian accounts starts and some Canadian obligations carry on.

What are the tax implications of moving to the US?

Three things happen. Canada stops taxing you as a resident and taxes the built-up gain on most of your property as if you’d sold it the day before you left. The US starts taxing you on worldwide income from the day you become a US resident. And your Canadian accounts become foreign accounts with US reporting. The planning that saves money happens before the move, because the deemed sale is fixed at the departure date.

What is Canada’s departure tax?

Under ITA 128.1(4), when you cease to be resident in Canada you’re deemed to have disposed of each property you own at its fair market value immediately before you leave. The gain goes on your departure-year return. The main exclusions for an individual are real property in Canada, property used in a business you carry on through a permanent establishment in Canada, and “excluded rights or interests”, which include an RRSP, RRIF, RESP, RDSP, TFSA, FHSA and registered pension plans. Non-registered portfolios, private company shares and US property are caught.

How can you reduce the departure tax before you go?

The deemed sale is fixed at your departure date, so the levers all have to be pulled before you leave: realize losses, use any exemption you qualify for, pick the year, or defer the payment with security.

• Realize losses. Selling positions with unrealized losses before the departure date gives you capital losses to set against the deemed gains on the same return.
• Use the lifetime capital gains exemption. If you own shares that qualify, the CRA says that under proposed changes the 2025 lifetime capital gains exemption is $1,250,000. To claim it you have to be resident in Canada throughout the year, or for part of it and throughout the year before, so check that and the share tests before the departure date.
• Think about the date. The deemed sale lands in the year you leave, so a year with less other income can mean a lower rate on the gain.
• Defer instead of pay. Under ITA 220(4.5) you can elect to post security and defer the tax on the deemed gains until you actually sell. The CRA says you file Form T1244 by April 30 of the year after you emigrate, and security is needed only if the federal tax owing on the deemed dispositions is more than $16,500. While security is accepted, interest is computed as if the deferred amount had been paid.

What should you do with your RRSP?

Usually, leave it. The RRSP is an excluded right, so it isn’t caught by the deemed sale. On the US side, Revenue Procedure 2014-55 treats an eligible individual as having made the treaty election under Article XVIII(7) to defer US tax on the plan’s income until it’s paid out, so you don’t file anything to keep the deferral. Form 8891 is obsolete.

• Withdrawals after you leave. Canada’s Part XIII tax on an RRSP payment to a non-resident is 25% under ITA 212(1)(l).
• The 15% treaty rate. It applies only to periodic pension payments. A payment out of an RRSP before maturity isn’t periodic under Canada’s definition; RRIF payments are periodic up to the greater of twice the minimum amount or 10% of the fund’s value at the start of the year. See lump sum vs periodic after moving.

What should you do with your TFSA?

A TFSA is an excluded right, so the deemed sale skips it, but it stops being useful once you leave. Under ITA 207.03, a contribution made while you’re a non-resident is taxed at 1% of the contribution for each month until it’s withdrawn.

On the US side, Revenue Procedure 2014-55 covers plans within Article XVIII(7), which is limited to arrangements operated exclusively to provide pension, retirement or employee benefits. A TFSA isn’t a retirement plan, so the US deferral doesn’t reach it and its income is reportable on your US return each year. The TFSA foreign trust guide covers the Form 3520 question.

What about Canadian mutual funds and ETFs?

A foreign corporation is a passive foreign investment company (PFIC) under IRC 1297 if 75% or more of its gross income is passive, or at least 50% of its assets produce passive income. Canadian mutual funds and ETFs held outside an RRSP often fall in that definition, and a US person who holds a PFIC files Form 8621. Because the deemed sale already taxes their gain in Canada, selling them before you leave usually costs nothing extra in Canada and avoids the PFIC rules on the US side.

When do you stop being a Canadian resident?

The CRA looks at your residential ties. The significant ones are a home in Canada, a spouse or common-law partner in Canada, and dependants in Canada. Secondary ties include provincial health insurance, Canadian bank accounts and credit cards, a Canadian driver’s licence, and personal property like a car or furniture. Cutting the significant ties is what fixes the departure date. If you want the CRA’s opinion, you can file Form NR73, Determination of Residency Status (leaving Canada).

How do you file the Canadian departure return?

You file a T1 for the year you leave, reporting worldwide income up to the departure date and the deemed gains. For most people it’s due April 30 of the following year; if you were self-employed it’s June 15, but any balance owing is still due April 30.

• Form T1161. If the fair market value of everything you owned when you left was more than $25,000, you list your properties on Form T1161 with the return.
• Form T1244. The security election to defer the departure tax.
• After you leave. Canadian-source income you earn as a non-resident, such as rent, dividends or RRSP payments, goes through Part XIII tax at 25%, reduced by the treaty where it applies.

What US return do you file in the arrival year?

Under the substantial presence test, your US residency usually starts on the first day you’re present in the US that year. Under the green card test, it starts on the first day you’re present as a lawful permanent resident. Before that date you’re a nonresident, so the arrival year is normally a dual-status year: US-source income only for the nonresident part, worldwide income for the resident part, and no standard deduction.

• Full-year choice. If you were a nonresident at the start of the year, a resident at the end, married to a US citizen or resident at year end, and your spouse joins in the choice, you can be treated as a US resident for the whole year and file jointly, which means reporting worldwide income for the whole year.
• First-year choice. If you don’t meet either test in the arrival year but meet substantial presence the next year, you may be able to choose residency for part of the arrival year, if you were present at least 31 days in a row and 75% of the days from then to year end.
• The dual-status vs full-year election guide compares the two.

What US reporting starts after you move?

Once you’re a US resident, your Canadian accounts and companies become foreign assets on the US side. These are the filings that usually start in the first US year, and the penalties for missing them are separate from any tax.

• FBAR (FinCEN 114). Required when the total of your foreign financial accounts exceeds $10,000 at any time in the year. Canadian bank and brokerage accounts count, and Revenue Procedure 2014-55 says its relief doesn’t remove the FBAR requirement for an RRSP or RRIF.
• Form 8938. For a single filer living in the US, required when specified foreign financial assets are more than $50,000 on the last day of the year or more than $75,000 at any time ($100,000 and $150,000 on a joint return). The 8938 vs FBAR guide explains the overlap.
• Form 5471. If you control a Canadian corporation, IRC 6038 information reporting applies, with a $10,000 penalty for each year the information isn’t filed.
• Form 8621 for each PFIC you still hold.

How do you avoid US tax on gains Canada already taxed?

Canada taxes the deemed gain at departure, but your US cost basis is still your original cost. Article XIII(7) of the treaty fixes that: when one country taxes you on a deemed sale, you can elect to be treated in the other country as if you had sold and bought back the property at fair market value at that time. The election lines up your US basis with Canada’s deemed proceeds. The basis step-up guide shows how it’s made on the US return.

What if you move back to Canada later?

If you left after October 1, 1996, become a Canadian resident again and still own property that was caught by the deemed sale, you can elect to adjust or unwind the departure-year deemed disposition. The CRA says the election must be made in writing on or before the filing due date for the year you return.

What should I do next?

Start six to twelve months before the move. Value what you own, flag what the deemed sale catches, and decide on the TFSA, the mutual funds and any security election before the departure date.

Related guides

• US-Canada Tax Treaty Tiebreaker Rules
• Moving from Canada to the US: Tax Checklist for the Year You Emigrate

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