Your First US Tax Return as a Canadian: What to Expect

Your first US tax return as a Canadian immigrant is the most complex return you will file, because it sits at the intersection of Canada’s departure rules and the US’s entry rules. In the same calendar year, you may owe Canadian tax on worldwide income for the part of the year you were a Canadian resident, Canadian non-resident withholding on Canadian-source income for the rest of the year, and US tax on worldwide income from the date you became a US tax resident (or from January 1 if you make the full-year election). The departure tax, the dual-status vs full-year election, the RRSP treaty election, and the first FBAR all land in the same filing season.

What is a dual-status return?

A dual-status return splits the year into two periods: the non-resident period (January 1 to the day before you became a US tax resident) and the resident period (the day you became a US tax resident to December 31).

• Non-resident period. You are taxed only on US-source income (wages earned in the US, US rental income, US investment income). Canadian-source income during this period is not reported on the US return.
• Resident period. You are taxed on worldwide income, including Canadian-source income (RRSP growth, Canadian bank interest, Canadian dividends, Canadian rental income).

The dual-status return uses Form 1040 for the resident period and a statement (or Form 1040-NR) for the non-resident period. You cannot take the standard deduction on a dual-status return (you must itemize). You cannot file jointly with your spouse on a dual-status return (unless you make the full-year election).

Should I make the full-year election?

The full-year election treats you as a US resident from January 1. The benefits:

• Standard deduction. You can take the standard deduction ($14,600 for single filers in 2024, $29,200 for married filing jointly), which is often larger than itemized deductions.
• Joint filing. If your spouse is also in the US (or willing to be treated as a US resident), you can file jointly, which typically produces a lower tax rate.
• Simplicity. One status for the whole year, no non-resident period.

The cost: worldwide income from January 1 is subject to US tax, including Canadian employment income earned before the move. The FTC for Canadian tax paid on that income offsets most of the US tax, but the FTC limitation may leave some excess credit.

The election is generally beneficial when the standard deduction exceeds your itemized deductions and the FTC covers the additional US tax on pre-move income.

What about the RRSP?

The RRSP is recognized under the Canada-US treaty (Article XVIII(7)). The treaty allows you to defer US tax on income accruing inside the RRSP, but you must make an election. The election is made by attaching a statement to your US return for the first year of US residency, per Revenue Procedure 2014-55.

• If you do not make the election on the first return, the RRSP income (interest, dividends, capital gains inside the RRSP) is taxable on your US return each year. This is not the intended result, and making the election retroactively requires the Commissioner’s consent.
• The RRSP is also a foreign financial account for FBAR purposes and a specified foreign financial asset for Form 8938 purposes.

What about the TFSA?

The TFSA is a foreign trust for US purposes. Unlike the RRSP, there is no treaty election to defer US tax on TFSA income. The income accruing inside the TFSA is taxable on your US return each year, and you must file Form 3520/3520-A. The pre-move planning guide recommends collapsing the TFSA before the move to avoid this reporting burden.

If you did not collapse the TFSA before moving, collapse it as soon as possible after arriving. The longer it stays open, the more US reporting it generates.

What other forms are required?

Your first US return will likely include several forms beyond the standard 1040.

• Form 1040. The US individual income tax return.
• Form 1116. The foreign tax credit claim for Canadian taxes paid.
• FBAR (FinCEN 114). Filed separately (not with the tax return) through the BSA E-Filing system. Reports all foreign financial accounts (Canadian bank accounts, RRSP, TFSA, investment accounts) with an aggregate value exceeding $10,000 at any point during the year.
• Form 8938. The FATCA report, filed with the return, for specified foreign financial assets exceeding the reporting threshold ($200,000 at year-end or $300,000 at any time for taxpayers living outside the US; $50,000 at year-end or $75,000 at any time for taxpayers in the US).
• Form 8833. Treaty-based return position disclosure, if you are relying on the treaty for the RRSP election or other treaty benefits.
• Form 3520/3520-A. If you held a TFSA, RESP, or FHSA during the year of US residency.

What should I do next?

Before filing your first US return, gather all Canadian tax documents (T4, T5, RRSP statements, TFSA statements, Canadian notice of assessment for the departure year). File the departure-year Canadian return first (or simultaneously), because the Canadian tax paid determines the FTC on the US return. Make the RRSP treaty election on the first return. File the FBAR by October 15 (automatic extension from April 15).

• Dual-status return vs full-year election, the detailed comparison
• Pre-move tax planning, what to do before the move
• Moving to the US from Canada: tax checklist, the post-move checklist
• RRSP vs 401(k) for cross-border filers, the treaty election and ongoing treatment
• FBAR filing requirements, the foreign account reporting

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