Cross-Border Tax Planning: Canada-US Decisions and Dates

Cross-border tax planning between Canada and the US comes down to a handful of decisions, each with a date attached. Before a move, you set your Canadian departure date and deal with the departure tax. In the move year, you claim the treaty step-up on your US basis and pick how to file your first US return. After that, you file the same set of foreign reporting forms every year. Get the order right and much of the double tax can be avoided.

What does cross-border tax planning cover?

It covers every decision where Canada’s rules and the US rules meet and the outcome turns on what you do and when. For most people that means three windows: before the move (departure date, departure tax, registered accounts), the move year (US start date, the first US return, the treaty step-up), and every year after (foreign account and investment reporting, foreign tax credits, estate exposure).

The table is the planning list we work from. The dates are the general rules; your facts can move them.

Decision	When it has to be made	What it affects
Your Canadian departure date	Set by your facts; reported on page 1 of the departure-year return	When Canada stops taxing your world income, and the date of the deemed disposition
Whether to defer departure tax (Form T1244)	By April 30 of the year after you emigrate	When you pay the tax on the deemed gain, and whether you post security
Listing your property (Form T1161)	By your filing due date, if your property tops $25,000	A $25 a day late penalty, $100 minimum and $2,500 maximum
The treaty step-up on US basis	On the US return for the year you leave Canada	How much gain the US taxes when you later sell
Your US residency start date	The first day you’re present in the US in the year you meet the test	Which part of the year the US taxes on world income
Dual-status or full-year resident return	On the first US return, due April 15 of the next year	Standard deduction, joint filing, and which income is in the US return
Annual foreign reporting (FBAR, Form 8938, Form 8621, Form 3520)	Every year after the move	Penalty exposure on accounts and funds you kept in Canada

The checklist version, by filer type, is in the annual Canada-US compliance checklist. The move itself, step by step, is in moving from Canada to the US: the tax checklist. Planning for a move in either direction is in pre-move tax planning.

What should I decide before moving to the US?

Your departure date and what you’ll do about the departure tax. The CRA says you usually become a non-resident on the latest of the day you leave, the day your spouse or partner and dependants leave, and the day you become resident in your new country (CRA, Leaving Canada). The steps to make that date hold are in how to become a non-resident of Canada.

On that date, you’re deemed to have disposed of each property you own at its fair market value (ITA 128.1(4)(b)). Half of the resulting capital gain is taxable (ITA 38(a)). Some things are left out. The CRA’s list of exceptions includes Canadian real property, RRSPs, RRIFs, RESPs, TFSAs and pension plans, among others (CRA, Dispositions of property for emigrants). So your house and your registered accounts don’t trigger departure tax. A non-registered portfolio and private company shares usually do.

Three things to plan around:

• Paperwork. If the fair market value of everything you owned when you left was more than $25,000, you file Form T1161 with the departure-year return. Cash, registered plans and personal-use items under $10,000 don’t count toward that total. The late penalty is $25 a day, with a $100 minimum and a $2,500 maximum, and T1161 is due on the filing due date even if no return is.
• Paying later. Form T1244 lets you defer the departure tax, interest free, until you sell. The election is due by April 30 of the year after you emigrate. If the federal tax on the deemed disposition is more than $16,500, you have to give the CRA adequate security (same CRA page). Whether deferring is worth it depends on what you’d post.
• Registered accounts. You can keep a TFSA, and its income and withdrawals stay exempt from Canadian tax, but you can’t contribute while you’re a non-resident and your room doesn’t grow (CRA, Leaving Canada). What the US does with a TFSA, RRSP or RESP is a separate question, covered in what happens to my RRSP and TFSA when I move to the US.

The size of the bill is covered in what Canada’s departure tax actually catches.

How do I avoid paying tax twice on the departure gain?

By making the treaty election that resets your US cost basis. Article XIII(7) of the Canada-US treaty says that when one country treats you as having disposed of property and taxes you on it, you can elect to be treated in the other country, for that year and later years, as if you’d sold and bought it back at fair market value just before that time (Canada-United States Tax Convention Act, Schedule VI, Article 8).

Without it, the US starts from your original cost. Canada taxes the growth up to your departure date, and when you sell years later the US taxes the same growth again, plus anything after.

The election runs from the year you leave Canada, so in practice it’s claimed on the US return for that year. Whether that return also needs a treaty disclosure on Form 8833 is covered in when do I need Form 8833, and the mechanics of the step-up are in does the US recognize what you paid in departure tax.

When does US tax residency start?

Generally on the first day you’re in the US in the year you meet the substantial presence test. You meet it with at least 31 days in the current year and 183 days over three years, counting all of this year’s days, one third of last year’s and one sixth of the year before (IRS Publication 519). In setting the start date, you can leave out up to 10 days of presence if on those days you had a closer connection to Canada and your tax home was there.

With a green card and no substantial presence, the start date is the first day you’re in the US as a lawful permanent resident. If you meet both tests, it’s the earlier of the two dates (same publication).

If you arrive late in the year and don’t meet the test until the next year, the first-year choice can let you be treated as a resident for part of the arrival year. It needs at least 31 days in a row in the US and presence on at least 75% of the days from the start of that 31-day period to year-end (Pub. 519 states these for 2025). The day count itself, with a counter, is in the substantial presence test formula.

Your Canadian departure date and your US start date can land weeks apart. If both countries claim you as resident on the same days, the treaty tie-breaker decides, which is the route in deemed non-resident of Canada.

Should I file dual-status or as a full-year resident?

It depends on whether you’re married and what you earned before the move. A dual-status return taxes you as a resident only from your start date, but it comes with restrictions: you can’t use the standard deduction and you can’t file a joint return (IRS Publication 519). For a couple who both arrive in the same year, there’s a way out.

If you were a nonresident at the start of the year, a resident at the end, and married to a US citizen or resident at year-end, you and your spouse can choose to be treated as US residents for the whole year. You then file jointly and are taxed on world income for the full year, including the Canadian salary from before the move, and neither of you can make the choice again for a later year (same publication). Canadian tax paid on that early salary is usually where the foreign tax credit on Form 1116 comes in.

The return is due April 15 of the year after the move if you’re a resident on the last day of the year (same publication). The side-by-side, with when each wins, is in dual-status return or full-year election. For what the first return costs, see how much a dual-status return costs.

What do I file every year after the move?

A set of US information returns on what you kept in Canada, on top of your regular US return. None of them are tax by themselves, but the penalties for missing them are separate from tax, and they’re where most cross-border trouble starts.

Form	Who files	Threshold or trigger	Due
FBAR (FinCEN 114)	US persons with foreign financial accounts	Aggregate value over $10,000 at any time in the year	April 15, automatic extension to October 15
Form 8938	US taxpayers with specified foreign financial assets	Living in the US, single: over $50,000 at year-end or $75,000 at any time; joint: over $100,000 or $150,000	With the income tax return
Form 8621	US shareholders of a PFIC, such as most Canadian mutual funds and ETFs	One form per fund, in the circumstances listed in the instructions	With the income tax return
Form 3520	US persons	Transactions with or ownership of foreign trusts, and certain large gifts or bequests from foreign persons	15th day of the 4th month after year-end, generally the same day as the return
Form 1116	Individuals	Foreign tax paid or accrued that you want to credit	With the income tax return

Sources: IRS, FBAR; IRS, Do I need to file Form 8938; Instructions for Form 8621; IRS, About Form 3520; Instructions for Form 3520.

The direction matters. If you’re the reverse case, a US citizen living in Canada, Canada adds its own form: Form T1135 when the total cost of your specified foreign property is more than $100,000 at any time in the year, due with your return (CRA, T1135 questions and answers).

Each has its own guide: how to file the FBAR, Form 8938 vs FBAR, Canadian funds and Form 8621, and Form 3520 for US persons in Canada.

Does cross-border planning include estate planning?

It should, because both countries tax at death and they do it differently. Canada treats you as having disposed of each capital property at fair market value immediately before death (ITA 70(5)), so the tax lands on the final return. The US taxes the estate itself, and a Canadian who isn’t a US citizen can owe a US estate return just for holding US assets.

For a nonresident who isn’t a US citizen, Form 706-NA is required when US-situated assets, plus certain gift amounts, exceed a $60,000 filing threshold, and it’s due within 9 months after death (Instructions for Form 706-NA). Once you live in the US, the answer can change: the IRS says whether you’re a nonresident for estate tax is a different test from the income tax one (IRS Publication 519).

Where the treaty credit fits, and how the $60,000 figure relates to the larger treaty exemption, is in US estate tax for Canadians.

Next steps

Write down three dates: the day your last significant tie in Canada ends, your first day in the US, and the day you expect to sell anything you’re carrying a gain on. Then match each one to the decisions in the first table. If two of them land in the same tax year, plan the Canadian and US returns for that year together. For what the departure return itself costs, see the cost of a departure tax return.

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