Moving Back to Canada From the US: What Changes, and When?

Canadian tax starts again on the day you establish residential ties here, which is a facts question rather than a border formality. An instant before that, ITA 128.1(1)(b) deems you to have disposed of most of what you own at fair market value, and paragraph (c) deems you to have acquired it back at the same figure. That resets your Canadian cost base, so gain built up while you were a non-resident generally sits outside Canada’s later computation. If you’re a US citizen or a green card holder, none of it stops your US filing.

Who is this page for, and what stays outside it?

Someone who has been living in the United States and is now re-establishing a life in Canada, with US accounts, maybe a US employer, and often a US citizenship or a green card that doesn’t switch off when they land. This page covers the tax side of that move: when Canadian residence restarts, what Canada deems you to have bought on the way in, and what you file in year one. Visas, PR cards, an authorization to return, and what you’re allowed to bring across the border belong to your immigration counsel.

• Rolling a 401(k) into an RRSP, and why a Roth usually can’t follow: what happens to a 401(k) and a Roth IRA when you move back to Canada
• Keeping a Roth sheltered once you’re here: does a Roth IRA stay tax-free in Canada
• What the US withholds when the money actually comes out: getting the treaty rate on a US IRA or 401(k) as a Canadian resident
• The order the residency tests run in, and when the treaty tie-breaker starts, which is the same machinery, written for someone leaving Canada rather than returning: am I still a Canadian tax resident
• Handing back a green card, which is its own regime with its own exit rules: giving up a green card and the exit tax

What happens when you move back, and in what order?

Six things, and they land on different dates. Your Canadian residence restarts when you establish ties here. An instant before that, Canada deems you to have sold and bought back most of what you own at fair market value. Then the arrival year’s filing runs: a part-year Canadian return, a decision about whether a T1135 is due, an RRSP number that’s usually smaller than people expect, and, if you left Canada after October 1, 1996 and paid departure tax, an election whose deadline lands on that same return.

Step	What happens	What it keys to	Where it’s covered
1. Residential ties get established	You become a factual resident of Canada again	Establishing ties, and generally the date you entered where you establish them then	This page, plus the order the residency tests run in, the same machinery, written for someone leaving Canada rather than returning
2. Deemed disposition of most property	Deemed sold at fair market value under s.128.1(1)(b), with four exclusions for an individual	The instant immediately before the instant immediately before residence restarts	This page
3. Deemed acquisition at that same figure	Your Canadian cost base becomes arrival fair market value under s.128.1(1)(c)	The particular time your residence restarts, which is a later instant than step 2	This page
4. Part-year Canadian return	Worldwide income for the resident part of the year, plus Canadian-source items for the rest	ITA 114, filed by the following April 30, or June 15 if you carried on a business	This page
5. Foreign reporting decision	Whether Form T1135 is required for the arrival year, which turns on whether the first-year exemption reaches you	ITA 233.7, tested against the arrival year	This page
6. Departure-tax unwind, if you paid one	Two elections that can adjust what you reported when you left, in different ways	Filed on or before your filing-due date for the year residence restarts	This page, plus what Canada’s departure tax is and what it catches

When does Canadian tax residency actually restart?

When you establish residential ties in Canada, which is a facts question rather than a border event. A reference to a person resident in Canada includes anyone ordinarily resident here (ITA 250(3)), and the CRA reads that through ties. Where you enter Canada and establish those ties, the CRA generally treats the date you entered as the date you became resident, and it flags its own exception for sojourners in the same sentence.

“Where an individual enters Canada and establishes residential ties with Canada as described in 1.25 and 1.26, the individual will generally be considered to have become a resident of Canada for tax purposes on the date the individual entered Canada (but see 1.32 for comments on sojourners).” (Folio S5-F1-C1, paragraph 1.28)

The ties that decide it are generally the same ones that decided your departure, read forward instead of backward, plus two that only appear on the way in. The folio says the most important factor for someone entering Canada is whether the individual establishes residential ties, that a spouse or common-law partner, dependants and a dwelling place in Canada will “almost always” be significant, and that landed immigrant status together with provincial health coverage will usually be significant too (Folio 1.25). The CRA says the same thing in plainer words on its newcomers page: you become a resident “when you have enough residential ties in Canada”, and for most newcomers “this starts the first day you live in Canada” (Newcomers to Canada and the CRA).

Tie	What’s in it	How much weight
Primary	Your dwelling place, your spouse or common-law partner, your dependants	The folio says these “almost always” count as significant, which is a strong presumption and still depends on the facts of the case (Folio 1.11, which is written in the leaving direction and imported to the entering direction by Folio 1.25)
Primary, on the way in specifically	Landed immigrant status plus provincial health coverage	The folio says these will “usually” constitute significant ties on entering, and that except in exceptional circumstances the individual will then be determined to be resident (Folio 1.25)
Secondary	Personal property here, social and economic ties, a provincial licence, a registered vehicle, a Canadian passport, union or professional memberships	Weighed collectively; the folio says it would be unusual for one alone to decide it (Folio 1.14, which lists ties of an individual while outside Canada and is imported to the entering direction by Folio 1.25)

If you want the CRA’s own opinion on your status coming in, the form is NR74, Determination of Residency Status (Entering Canada). It’s optional, and NR73 is the leaving-Canada version, so don’t file the one you filed last time.

Can a mid-year arrival still get caught by the 183-day rule?

Yes, and that’s the version of this question that belongs on an arrival page. Where your ties make you a factual resident from the day you land, you’re a part-year resident. The part-year computation lives in ITA 114, which confines your taxable income to what you earned worldwide during the resident part, plus the Canadian-source items ITA 115(1) picks up for the non-resident part. Where they don’t, the day count can reach you instead: the 183-day rule at ITA 250(1)(a) deems a person resident throughout the taxation year, and the whole-year deeming carries no such confinement.

• Ties get tested first. The CRA’s folio says subsection 250(1) has no application until it has been determined that the individual is not factually resident (Folio 1.30).
• Then the two outcomes split. Someone factually resident for part of the year is taxed on worldwide income for that part; a sojourner caught by the day count is taxed on it for the whole year (Folio 1.32).

That is a real difference in dollars for someone who moved back mid-year with a big first half, so a long run of Canadian days earlier in the same year is worth counting before anyone assumes the part-year answer. The full ordering, including where the treaty tie-breaker enters, is its own guide, the same machinery, written for someone leaving Canada rather than returning.

	While you’re still a non-resident	Once your Canadian residence has restarted
What Canada taxes	Canadian-source income, computed under ITA 115(1) for a person not resident at any time in the year, and under ITA 114 for the non-resident part of a part-year	Worldwide income for the part of the year you’re resident, per Folio 1.1, unless the 183-day rule deems you resident for all of it
Capital gains Canada can reach	Gains on taxable Canadian property other than treaty-protected property, under ITA 115(1)(b)	Gains on property generally, measured from the cost base the arrival rule gave you
Your cost base for Canadian purposes	Whatever it was, which Canada has had no reason to measure	Fair market value at the particular time, for each property the arrival rule deemed disposed under s.128.1(1)(b)
Whether foreign holdings count toward the T1135 threshold	They don’t: the “reporting entity” test in ITA 233.3(1) measures cost amount “at any time (other than a time when the entity is non-resident)“	They do, from the moment residence restarts, subject to the first-year exemption in ITA 233.7 if it reaches you
Whether the year builds RRSP room, which in either case lands in the FOLLOWING year’s limit	Generally only where the duties were performed in Canada or the business was carried on in Canada, per the “earned income” definition in ITA 146(1)	Yes, on the resident-period income the same definition lists

What does Canada deem you to have sold and bought back on arrival?

Almost everything you own, at fair market value, an instant before your residence starts. ITA 128.1(1)(b) deems you to have disposed of each property you own, and paragraph (c) deems you to have acquired it back at a cost equal to those proceeds. Four things are left out for an individual: taxable Canadian property, inventory of a business carried on in Canada, Class 14.1 property of such a business, and an excluded right or interest other than an interest described in paragraph (k) of that definition.

“(b) the taxpayer is deemed to have disposed, at the time (in this subsection referred to as the “time of disposition”) that is immediately before the time that is immediately before the particular time, of each property owned by the taxpayer, other than, if the taxpayer is an individual, (i) property that is a taxable Canadian property, (ii) property that is described in the inventory of a business carried on by the taxpayer in Canada at the time of disposition, (iii) property included in Class 14.1 of Schedule II to the Income Tax Regulations, in respect of a business carried on by the taxpayer in Canada at the time of disposition, and (iv) an excluded right or interest of the taxpayer, other than an interest described in paragraph (k) of the definition excluded right or interest in subsection (10), (v) [Repealed, 2001, c. 17, s. 123] for proceeds equal to its fair market value at the time of disposition” (ITA 128.1(1)(b))

Read the timing twice, because it does real work. The disposition is deemed at “the time of disposition”, which the paragraph defines as the instant immediately before the instant immediately before the particular time. The acquisition happens at the particular time itself, under paragraph (c), which the Act marginal-notes “Deemed acquisition” and which says you are “deemed to have acquired at the particular time each property deemed by paragraph 128.1(1)(b) to have been disposed of by the taxpayer, at a cost equal to the proceeds of disposition of the property”. That is two separate instants, and the sale side of it happens while you are still a non-resident.

That last point is why the arrival deemed disposition generally produces no Canadian tax bill of its own. A non-resident’s taxable capital gains reach Canada through ITA 115(1)(b), which picks up gains from dispositions of “taxable Canadian properties (other than treaty-protected properties)”, and taxable Canadian property is exactly the class subparagraph (b)(i) leaves out of the deemed disposition. So the rule that hands you a cost base doesn’t generally hand you a bill along with it. It says nothing about US tax on the same date, which runs on its own rules.

Nothing is sold, no money moves, and no cash changes hands. What changes is the number Canada will subtract from your proceeds the day you actually do sell.

Why aren’t the arriving exclusions the same as the leaving ones?

Because they’re two different rules in two different subsections, and both of the paragraphs that matter are lettered (b). The arriving rule at s.128.1(1)(b) leaves out taxable Canadian property. The leaving rule at s.128.1(4)(b) leaves out real or immovable property situated in Canada, a Canadian resource property or a timber resource property. Those are two different tests on two different classes, and substituting one for the other changes which of your assets sits inside the deemed disposition and which sits outside it.

• Taxable Canadian property. A term defined elsewhere in the Act that this page doesn’t unpack, and the exclusion that does most of the work on the way in.
• Inventory of a business carried on in Canada at the time of disposition.
• Class 14.1 property of such a business, at the same time.
• An excluded right or interest, other than an interest described in paragraph (k) of that definition.

Nothing on that list is the real-property description people reach for out of habit, and which list you’re reading depends on which direction you’re travelling. If you’re carrying property that sits near any of those boundaries, that’s a question for your own file rather than for a table. The full side-by-side of the two lists, row by row, is on the departure-tax pillar.

What does the arrival step-up actually do, and what doesn’t it do?

It resets your Canadian cost base to fair market value at the particular time, so gain that accrued while you were a non-resident generally sits outside Canada’s later computation. It does not touch the US side. Under IRC 1012(a) your US basis “shall be the cost of such property”, subject to the exceptions that section names, so a US citizen who keeps the same asset ends up measuring one gain in Canada from the arrival value and a different gain in the US from the original cost.

• What it does. Gives you a Canadian cost equal to arrival fair market value, property by property, for everything the arrival rule deemed disposed under s.128.1(1)(b).
• What it does not do. Change your US basis, which stays at cost under IRC 1012(a) unless one of that section’s own exceptions applies.
• What it does not reach. The four excluded classes in subparagraphs (b)(i) to (b)(iv), which never enter the deemed disposition and therefore get no reset from it, though each of those classes is defined on its own terms and whether one of your assets falls inside it is a fact question.
• What it needs from you. Evidence. The Act fixes the figure as fair market value at the time of disposition and leaves you to prove what that was.

Canada does give a foreign tax credit for foreign tax on foreign income, but it’s a capped credit rather than a wipe. ITA 126(1) lets a taxpayer who was resident in Canada at any time in the year deduct non-business-income tax paid to another country’s government, “not exceeding, however” a proportion of the Canadian tax that the section then defines. Two countries measuring different gains on the same asset is exactly the situation where that limit bites, and working it out is a preparer’s job on your actual numbers.

Do you still have to file US returns after you move back?

If you’re a US citizen or a green card holder, yes, and moving doesn’t change it. The regulation puts every US citizen, wherever resident, and every resident alien on the hook for US income tax whether the income comes from inside or outside the United States. The IRS says the same in plainer words and adds that the reliefs Americans abroad rely on, the foreign earned income exclusion and the foreign tax credit among them, can be claimed only by filing a US return.

“In general, all citizens of the United States, wherever resident, and all resident alien individuals are liable to the income taxes imposed by the Code whether the income is received from sources within or without the United States.” (26 CFR 1.1-1(b))

The IRS puts it this way: “If you are a U.S. citizen or resident alien, the rules for filing income, estate, and gift tax returns and paying estimated tax are generally the same whether you are in the United States or abroad. You are subject to tax on worldwide income from all sources and must report all taxable income and pay taxes according to the Internal Revenue Code” (US citizens and resident aliens abroad). So the realistic picture for a returning US citizen is two returns a year, indefinitely, with foreign tax credits on each side doing most of the work of stopping the same income being taxed twice at full rates. The treaty carries further relief rules on top of that, and each of the ones this corridor runs into belongs to a sibling guide rather than to this page. Either way it’s a permanent operating cost of the move, and it belongs in the decision rather than in a surprise the following April.

A green card is a different situation and it has an exit of its own. Handing one back, or letting it lapse, has US consequences of its own, which is why the decision is worth making deliberately rather than by drift: giving up a green card and the exit tax covers what that involves. If you’re a US citizen who never filed while abroad, the catch-up route is its own guide.

How much RRSP room do you have in your first year back?

Usually just what you carried forward from when you last lived here. Your RRSP deduction limit is unused room at the end of the preceding year plus, broadly, the lesser of the RRSP dollar limit and 18% of your earned income for the preceding year, reduced by pension adjustments. And “earned income” counts a non-resident period’s income generally only where the duties of the office or employment were performed in Canada, or the business was carried on in Canada. A year of US work performed in the US produces none of it.

“earned income of a taxpayer for a taxation year means the amount, if any, by which the total of all amounts each of which is (a) the taxpayer’s income … for a period in the year throughout which the taxpayer was resident in Canada from (i) an office or employment …, (ii) a business carried on by the taxpayer …, or (iii) property, where the income is derived from the rental of real or immovable property or from royalties … (c) the taxpayer’s income … for a period in the year throughout which the taxpayer was not resident in Canada from (i) the duties of an office or employment performed by the taxpayer in Canada …, or (ii) a business carried on by the taxpayer in Canada …” (ITA 146(1))

The carried-forward half is the good news, and it’s why the answer isn’t always nil. “Unused RRSP deduction room at the end of a taxation year” rolls forward under its own formula in ITA 146(1), and that formula attaches no residency condition to the roll-forward. So room you never used before you left is generally still sitting there when you come back. The number the CRA has on file is the one to check before you contribute anything, because contributing against room you assumed rather than confirmed is how an over-contribution starts.

Two situations break the general answer, and both are common in this corridor. If you performed employment duties in Canada during the preceding year while still a non-resident, paragraph (c) picks that income up and it does build room. If you were resident in Canada for part of the preceding year, paragraph (a) picks up that part. Either way, the first year back builds room for the FOLLOWING year, since the formula reads the preceding year’s earned income. A 401(k) transferred into an RRSP interacts with this separately, and that mechanism belongs to the 401(k) and Roth guide.

Do you have to file a T1135 for your arrival year?

Maybe, and the answer turns on a single word. ITA 233.7 says an individual who “first became resident in Canada in the year” is not required to file, and the CRA repeats that under a heading about new immigrants. If this is the first time you have ever been a Canadian resident, the exemption reads squarely onto you. If you lived in Canada before, left, and came back, the statute’s word is “first”, and we found no CRA statement extending the exemption to a returning former resident, so confirm it applies before you rely on it.

“233.7 Notwithstanding sections 233.2, 233.3, 233.4 and 233.6, a person who, but for this section, would be required under any of those sections to file an information return for a taxation year, is not required to file the return if the person is an individual (other than a trust) who first became resident in Canada in the year.” (ITA 233.7)

The CRA’s administrative statement of the same rule sits on its T1135 questions page, under the heading “What is the reporting requirement for new immigrants?”: “An individual does not have to file Form T1135 for the tax year in which he or she first became resident in Canada. For a new resident, the cost amount of foreign property is its fair market value at the time he or she first became resident in Canada. Use this fair market value in determining the new resident’s Form T1135 filing requirement for future years” (CRA, questions and answers about Form T1135). Note what that second sentence is doing: the figure CRA points at is the same fair market value the arrival deemed acquisition gives you under s.128.1(1)(c). So for property inside the arrival deemed disposition, the step-up and the CRA’s reporting figure start from the same number.

Three details worth carrying, whichever side of the “first” question you land on.

• What the exemption covers. Sections 233.2, 233.3, 233.4 and 233.6, which is the T1135 among others, for an individual who is not a trust. Section 233.1 is not in that list, so don’t read the relief wider than its own opening words.
• The threshold and the window. You’re a “reporting entity” where the total cost amount of your specified foreign property tops $100,000 at any time in the year “other than a time when the entity is non-resident” (ITA 233.3(1)). So the pre-arrival part of the year is outside the measurement, and the return is due by your filing-due date for the year under ITA 233.3(3).
• What’s out of the definition. Personal-use property is excluded from “specified foreign property” by paragraph (p) of the definition, and the CRA says the same on its questions page, so the US vacation place you use primarily as a personal residence is a different question from the brokerage account.

Whether a particular US retirement account is specified foreign property is not something this page settles, and it isn’t obvious from the definition. The Roth guide covers that question for a Roth and leaves it deliberately open, which is the honest state of it.

If you paid Canadian departure tax when you left, can you undo it?

Sometimes, and the deadline lands on the return for the year your residence restarts. ITA 128.1(6) is written for exactly this person: an individual who becomes resident in Canada again and whose last cessation of Canadian residence was after October 1, 1996. Both of the routes in it are elected in writing and filed with the Minister on or before your filing-due date for the year you become resident again.

• Paragraph (a) can switch the departure deemed disposition off for a narrow class of property this page doesn’t unpack.
• Paragraph (c) instead reduces the emigration-year proceeds and your arrival cost by the same amount, which is a trade rather than a refund.

That deadline is the piece of this that belongs to the arrival year, which is why the elections get looked at before the return goes in rather than after. Neither is a default move. What the departure deemed disposition caught in the first place, what each route reaches and leaves out, and how the deferral election interacted with all of it belong to what Canada’s departure tax is and what it actually catches and to the leaving-Canada checklist.

What does an arrival year look like on real numbers?

Two arrival years, both hypothetical, and both stopping short of a tax dollar. The first runs the step-up and shows the two countries measuring different gains on one asset. The second runs the calendar with no tax figure in it at all, so there’s nothing to subtract and no saving to infer. Both state their currency convention, because a real file computes the Canadian side in Canadian dollars and the exchange rate can move the Canadian answer on its own.

What does getting the arrival year right cost?

There’s no single number, because the work scales with what you own and what you left behind. What drives it: how many non-registered holdings need an arrival-day value, whether a US return keeps running alongside the Canadian one, whether a departure-tax election has to be unwound on the same filing, and whether anyone has to sort out which country taxes what. The one fixed price we publish is the Cross-Border Assessment at $249, a written read on your own move before anything gets filed.

• Cheap to get right early: the arrival-date evidence, the valuations, the RRSP-room check.
• Expensive to fix late: a cost base nobody documented, a missed s.128.1(6) election, an over-contribution against room that wasn’t there.
• Permanent, if you’re a US citizen: two returns a year, and the credit mechanics that keep them from colliding.

What should you do, and in what order?

Six jobs, and the order decides the numbers. Pin the date you established ties and keep the evidence for it. Get a written value for every non-registered holding as at that date, because your Canadian cost base rests on it. Work out whether you’re a part-year resident or someone the day count deems resident for the whole year. Check your carried-forward RRSP room before you contribute anything. Decide the T1135 question deliberately. Then, if you paid departure tax on the way out, look at the s.128.1(6) elections before the arrival year’s return goes in.

The job	Where it lives
Reading the residency tests in the order they run, and where the treaty tie-breaker fits	the order the residency tests run in, the same machinery, written for someone leaving Canada rather than returning, so read it as the machinery rather than as your arrival answer
Moving a 401(k) into an RRSP, and why a Roth generally can’t follow	the 401(k) and Roth IRA guide for moving back
Keeping a Roth sheltered once you’re a Canadian resident	does a Roth IRA stay tax-free in Canada
What the US withholds when money actually leaves an IRA or 401(k)	getting the treaty rate on a US IRA or 401(k)
Drawing down an RRSP from the US side, which is the mirror decision	RRSP lump sum versus periodic after moving to the US
Everything about the departure tax you may have paid on the way out	what Canada’s departure tax is and what it catches
The jobs on the way out, in the order they happen	the leaving-Canada checklist
Handing back a green card	giving up a green card and the exit tax
A TFSA you opened before, or open now, while still a US person	is a TFSA a foreign trust

None of that is one-size-fits-all. It depends on what you own, whether you’re a US person, whether you were ever a Canadian resident before, and when in the year you land. Several of those items run on a clock, and the two that expire are the s.128.1(6) elections and the arrival year’s own filing date.

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