Moving to the US from Canada: The Tax Checklist

Moving from Canada to the US is not one tax event but a sequence of them, and the order matters. Canada treats you as ceasing to be a resident on your departure date, which triggers a deemed disposition of most capital property (the departure tax), ends your eligibility for residence-based deductions and credits, and starts the non-resident withholding rules on any Canadian-source income going forward. On the US side, you become a US tax resident (by substantial presence, green card, or both), you start filing a 1040 on worldwide income, and your Canadian accounts require reporting. The planning window before you leave is where the most consequential decisions get made: what to do with the RRSP, how to handle the TFSA, whether to trigger or defer the departure tax, and how to set up the first US return.

What triggers the departure tax?

When you cease to be a Canadian resident, ITA 128.1(4) deems you to have disposed of most capital property at fair market value immediately before departure. The gain (if any) on each asset is included in your departure-year Canadian return and taxed at the regular 50% inclusion rate.

Exempt from the deemed disposition:

• Canadian real property. Real estate located in Canada is not deemed disposed because Canada retains the right to tax it when you actually sell it (you will be a non-resident at that point, and the gain is taxable under Section 116).
• RRSP, RRIF, and pension assets. These are taxed when withdrawn, not on departure.
• Canadian business property used in a permanent establishment in Canada (if you maintain one).
• Stock options from a Canadian employer (taxed when exercised).

Everything else (publicly traded securities, private company shares, foreign property, cryptocurrency) is subject to the deemed disposition. If you have significant unrealized gains, the departure tax can produce a large liability that is due with your departure return.

The CRA determines your departure date based on the facts: when you sold or rented out your home, moved your spouse and dependents, cancelled provincial health coverage, and closed or reduced Canadian bank accounts. If you leave ahead of your family, the CRA may still treat the departure as complete once the primary residential ties are gone. Filing Form NR73 (Determination of Residency Status on Leaving Canada) gets you a formal ruling on the departure date, though it is optional and can take months to come back.

You can elect to post security with the CRA and defer payment of the departure tax under ITA 220(4.5). The tax is still assessed, but no interest accrues on the deferred amount while the security is in place, which is what makes the election attractive if you do not intend to sell the assets soon. If you return to Canada within a few years, you can elect under ITA 128.1(6) to unwind the deemed disposition as if it never happened: the gains come off the departure return and the security is released. That unwinding election has to be filed by the filing deadline for the year you re-establish Canadian residency.

What do I do with the RRSP?

Leave it. The RRSP stays in Canada, keeps growing tax-deferred, and withdrawals take 25% Canadian non-resident withholding under the ITA. The treaty’s 15% rate under Article XVIII covers only periodic payments, and an RRSP withdrawal before maturity is never periodic, lump sum or not. Convert to a RRIF first and payments within the periodic limit get 15%. On the US side, the growth is tax-deferred as long as you made the treaty election under Article XVIII(7).

Practical steps before departure:

• Do not withdraw. Withdrawals while you are still a Canadian resident are taxed at your marginal rate (up to ~54%). Waiting until you are a non-resident means 25% withholding (15% on periodic RRIF payments once you convert), which is almost always lower.
• RRSP to RRIF conversion. You must convert by December 31 of the year you turn 71, regardless of residency. If you are already close to 71, factor the mandatory minimum withdrawals into the plan.
• Contribution room. You cannot contribute to an RRSP after you leave Canada (no earned income = no new room), and unused room is frozen.
• US reporting. The RRSP is a foreign financial account for FBAR and a specified foreign financial asset for Form 8938.

What do I do with the TFSA?

Collapse it before you leave. The TFSA is the single worst cross-border account. While you are a Canadian resident, it is tax-free in Canada. But the US does not recognize the tax-free status, and the most likely IRS classification is a foreign trust, requiring annual Forms 3520 and 3520-A. The compliance cost for these forms (typically $1,500 to $3,000 per year in professional fees) exceeds the tax benefit of the account for most balances.

• Non-resident complications. After you leave Canada, you cannot contribute, and any existing balance accrues a 1% monthly tax on “excess” TFSA amounts for non-residents (though the rules around this are complex and depend on whether you notify the TFSA issuer).
• The cleanest path. Withdraw everything from the TFSA before your departure date, while you are still a Canadian resident. The withdrawal is tax-free in Canada, and on the US side, the income was already being reported annually (if you were a US person), so there is no additional US tax event on withdrawal.

How do I file the Canadian departure return?

You file a T1 return for the year of departure, covering January 1 through your departure date. This return includes:

• All income earned while you were a Canadian resident (employment, self-employment, investment income)
• The deemed disposition gains from the departure tax
• The principal residence exemption designation if you are selling or have sold your Canadian home
• Any final RRSP deduction for contributions made before departure
• The departure date declaration on the return

The filing deadline is April 30 of the following year (or June 15 if you were self-employed). If you owe departure tax and want to defer payment, file Form T1244 to elect the security posting.

After departure, you remain a non-resident for Canadian tax purposes. If you earn Canadian-source income (rental income, pension/RRSP withdrawals, business income from a Canadian PE), you file a Section 216 or Section 217 return to report it.

What’s my US filing obligation in the arrival year?

If you become a US tax resident during the year (by green card or by meeting the substantial presence test), you have two options for the first year. Most Canadians moving to the US on a green card start with a dual-status return and shift to a full 1040 the following year.

• Dual-status return. You are a non-resident alien for the part of the year before you become a resident and a resident alien for the rest. The non-resident portion is taxed only on US-source income; the resident portion is taxed on worldwide income. This is the default.
• Full-year election. Under IRC 7701(b)(4), you can elect to be treated as a US resident for the entire year if you meet certain conditions. This can be beneficial if you want to file jointly with a US-citizen spouse, but it means reporting worldwide income for the entire year (including the pre-move period). The dual-status return guide covers the analysis.
• Information returns. In the arrival year, you also pick up FBAR obligations if foreign accounts exceed $10,000 at any point, Form 8938 if foreign financial assets exceed the reporting thresholds, and Form 8621 if you hold any Canadian mutual funds or ETFs that are PFICs.
• Residency start date. If you enter on a visa that leads to a green card, your residency start date is generally the first day of presence in the US. If you enter directly on a green card, it is the first day of presence as a lawful permanent resident. This date sets the line between the non-resident and resident portions of a dual-status return.
• SSN or ITIN. If your visa authorizes employment, apply for a Social Security number at the Social Security office. If it does not, apply for an ITIN using Form W-7.
• State tax. Register in your new state. If the state has an income tax, you are a part-year resident for the arrival year and file a part-year return.

How does the departure tax interact with US basis?

The departure tax creates a mismatch. Canada taxes you on the deemed gain at departure, but the US does not recognize the deemed disposition. Your US cost basis in those assets remains the original purchase price, not the fair market value on the departure date.

• The fix. The treaty election under Article XIII(7) lets you elect on your US return to step up the US cost basis to FMV on the departure date, which aligns the US basis with the Canadian deemed proceeds and prevents double taxation on the pre-departure gain. Without it, you pay US tax on the full gain when you sell, including the portion Canada already taxed.
• Timing matters. This election must be made affirmatively. If you miss it and sell the asset years later, amending to make the election retroactively is possible but adds cost and complexity.

What Canadian obligations survive after I leave?

Several Canadian filing obligations continue after you become a non-resident:

• Section 116 certificates if you sell Canadian real property (must be obtained before closing or the buyer withholds 25%)
• NR6/Section 216 returns for Canadian rental income (elective, but almost always beneficial)
• Section 217 elections for Canadian pension and RRSP/RRIF income (optional, beneficial when your worldwide income is low enough)
• Part XIII withholding on passive Canadian income (dividends, interest, rents, pensions), typically at treaty rates
• T1135 is no longer required (you are no longer a Canadian resident), but any T1135 obligations for the departure year must still be filed

What should I do next?

The six months before a Canada-to-US move are the highest-leverage planning window. The departure tax, the TFSA unwind, the RRSP treaty election, the basis step-up election, and the first US return structure are all decisions that are cheaper to get right now than to fix later.

• Canada departure tax explained
• US basis step-up via treaty election
• RRSP vs 401(k) for cross-border filers
• Dual-status return vs full-year election
• TFSA as a foreign trust
• Substantial presence test formula
• US filing deadlines for Americans abroad
• Selling your home cross-border, the PRE and Section 121 timing on a home sale after the move
• Provincial health insurance when leaving, OHIP/MSP termination, coverage gaps, and bridge insurance
• Pre-move tax planning checklist, the 6-to-12-month planning window before the move
• Your first US tax return as a Canadian, the complete first-year filing guide
• Moving from the US to Ontario, the reverse direction for moving back
• Cross-border stock options on an employer relocation, the sourcing and withholding traps when unvested options travel with you across the border

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