Moving from the US to Canada: Tax Checklist for the Year You Immigrate

The year you move from the United States to Canada is the most tax-complex year of the entire relocation. You are a US tax resident for part of the year (or all of it, if you are a US citizen), a Canadian tax resident from the date you establish residential ties, and potentially subject to state tax in whatever state you left. Every asset you own needs a basis established for Canadian purposes. Every account, retirement plan, and investment portfolio must be analyzed for cross-border treatment going forward. This is the checklist for getting the transition year right.

What determines the date you become a Canadian resident?

Canada uses a facts-and-circumstances test based on residential ties, not a bright-line day count. The CRA looks at primary residential ties: a home in Canada (owned or rented), a spouse or common-law partner in Canada, and dependents in Canada. Secondary ties include personal property (car, furniture), social ties (club memberships), a Canadian driver’s license, provincial health insurance, and Canadian bank accounts.

The date you establish these ties is the date you become a Canadian resident. For most people moving to Canada, this is the date they arrive and take possession of a home. If you sign a lease starting July 1, move your family in on July 5, and start working on July 8, the CRA will likely treat July 1 (or July 5) as the residency start date.

You can request a formal determination from the CRA by filing Form NR74 (Determination of Residency Status), but this is optional and can take months. Most taxpayers simply file their first Canadian return using the date they established ties, and the CRA accepts it unless the facts suggest otherwise.

What is the deemed acquisition rule?

ITA 128.1(1)(b) deems you to have acquired all your property at fair market value on the date you become a Canadian resident. This rule is critical because it establishes your Canadian cost base for every asset you own.

The practical effect: any gains that accrued before you became a Canadian resident are not taxed by Canada. Only gains that accrue after your residency start date are subject to Canadian capital gains tax when you eventually sell.

For example, if you own US stocks worth $500,000 with a US cost basis of $200,000, and the stocks are worth $500,000 on the day you become a Canadian resident, your Canadian cost base is $500,000. If you later sell the stocks for $600,000, your Canadian capital gain is $100,000 (not $400,000). The $300,000 of gain that accrued while you were a US resident is exempt from Canadian tax.

This rule applies to all capital property: stocks, bonds, real estate (other than your principal residence if you designate it), partnership interests, and trust interests. It does not apply to “taxable Canadian property” that you already owned before becoming resident (Canadian real property, shares of Canadian private companies), because Canada already had the right to tax those assets.

Document the FMV of everything. On the day you become a Canadian resident, get valuations or statements for every asset: brokerage accounts (use the closing prices on the residency date), real estate (get an appraisal or at least a comparable market analysis), private company shares (formal valuation if material), and retirement accounts. This documentation supports your deemed-acquisition cost base for every future Canadian return. Reconstructing FMV years later is expensive and unreliable.

What do US citizens need to know?

US citizens are taxed on worldwide income regardless of where they live. Moving to Canada does not reduce or eliminate US filing obligations. A US citizen who becomes a Canadian resident files both a US Form 1040 and a Canadian T1 every year, indefinitely.

The key provisions for US citizens in Canada:

• Foreign earned income exclusion (IRC 911): Allows exclusion of up to $126,500 (2024) of foreign earned income from US tax, if the taxpayer meets the bona fide residence test or the physical presence test. This reduces US tax on employment income earned in Canada.
• Foreign tax credit (IRC 901): Credits Canadian tax paid against US tax liability. Since Canadian rates are generally higher than US rates, the foreign tax credit often eliminates the US tax entirely (with excess credits carrying forward).
• FBAR (FinCEN 114): Must report all foreign (Canadian) financial accounts if the aggregate balance exceeds $10,000 at any point during the year. Bank accounts, investment accounts, RRSPs, TFSAs, and other financial accounts in Canada are reportable.
• Form 8938 (FATCA): Must report specified foreign financial assets if they exceed the filing thresholds ($200,000 on the last day of the year or $300,000 at any point during the year for taxpayers living abroad).
• Form 3520/3520-A: Canadian RRSPs and TFSAs may be treated as foreign trusts for US purposes, potentially requiring Forms 3520 and 3520-A. The RRSP is generally covered by the treaty deferral (Rev. Proc. 2014-55), but the TFSA is not, and ongoing TFSA earnings may need to be reported on the US return.

What investment and retirement planning comes before moving?

The pre-move window is the cheapest time to get the structure right, because several decisions are either impossible or expensive to fix after arrival.

PFIC cleanup. Canadian mutual funds and ETFs listed on the TSX are almost certainly PFICs (Passive Foreign Investment Companies) for US tax purposes. The PFIC regime imposes punitive taxation on gains and certain distributions unless you make a mark-to-market election annually. The cleanest path is to sell Canadian-listed funds before the move and hold US-listed ETFs in your US brokerage going forward. The PFIC-safe investment list walks through which vehicles work, and the Form 8621 guide covers the reporting mechanics if you do hold PFICs.

HSA. Stop contributions on the move date. An HSA has no equivalent status under the treaty, so after you become a Canadian resident it creates a taxable benefit on the Canadian side. Draw it down for eligible medical expenses before or shortly after the move.

Retirement accounts. Leave your 401(k) and traditional IRAs in the US. The treaty (Article XVIII) caps US withholding on distributions at 15%, and the accounts continue to grow tax-deferred. A Roth IRA requires a one-time election on your first Canadian return to preserve its tax-free status; without the election, Canada taxes the annual growth. A 401(k) stays put and functions the same way it did before the move, with the treaty rate applying to future withdrawals.

401(k) to RRSP transfer. This is possible under ITA 60(j), but the mechanics are complex. The US withholds 30% on the distribution, Canada allows a deduction for the RRSP contribution, and the mismatch between the withholding and the deduction creates a cash-flow gap that makes the transfer unattractive for most people.

RSUs, ISOs, and ESPPs. The cross-border allocation of stock compensation depends on where the services were performed, not where you live when shares vest. If you worked partly in the US and partly in Canada during the vesting period, both countries tax a portion. The RSU double-withholding guide covers the allocation mechanics.

Realizing pre-move gains. If you own appreciated assets, consider whether realizing gains while still a US-only filer makes sense. Canada will set your cost base to the fair market value on your arrival date (ITA 128.1(1)(b)), so the pre-move gain is a US-only event. Selling before the move simplifies the picture: you pay US tax on the gain, and Canada never sees it because the deemed-acquisition cost base equals the sale proceeds. If you hold through the move, the gain is still a US-only event for Canadian purposes, but tracking two cost bases on the same asset adds ongoing complexity.

What about non-citizens giving up a green card?

A non-citizen who moves to Canada and gives up their US green card (or simply stops being a US resident) files a “dual-status” return for the departure year: resident for the portion of the year before departure, nonresident for the rest.

If the green card holder was a “long-term resident” (held the green card for 8 or more of the preceding 15 tax years), they may be subject to the expatriation tax under IRC 877A. This provision treats the expatriating individual as having sold all worldwide assets at FMV on the day before the expatriation date. The net unrealized gain is taxed as if the assets were sold, with an exclusion of $866,000 (2024, indexed for inflation) for the aggregate gain. Any gain above the exclusion is taxed immediately.

The expatriation tax applies only to “covered expatriates,” which includes long-term residents whose average annual net income tax liability for the 5 years preceding expatriation exceeds $190,000 (2024, indexed), or whose net worth is $2 million or more, or who cannot certify 5 years of tax compliance.

A green card holder who has held the card for fewer than 8 years, has modest income and net worth, and is tax-compliant is generally not a covered expatriate and can give up the green card without the expatriation tax.

What state tax issues arise?

The state you leave may continue to tax you after you move. Some states are aggressive about maintaining residency claims:

• California: considers you a resident until you leave with the intent to establish a domicile elsewhere and actually establish that domicile. The “safe harbor” is 546 consecutive days outside California. Moving to Canada does not automatically end California residency on the departure date; California may tax worldwide income for the entire year of departure and potentially beyond.
• New York: similar to California, with a domicile analysis. If you maintained a permanent place of abode in New York and spent more than 183 days there, you are a statutory resident.
• Florida, Texas, Washington, Nevada: no state income tax. No departure tax issues.

The year of departure requires a final (or part-year) state return in the departure state, reporting income through the departure date (or for the full year, depending on the state’s rules). State taxes paid are creditable on the Canadian return through the foreign tax credit.

What common first-year traps catch Americans in Canada?

Several Canadian accounts and structures interact badly with US reporting rules. These are responsible for most of the first-year compliance cost.

TFSA trap. The Tax-Free Savings Account is Canada’s most popular savings vehicle, but the IRS does not recognize it. The most likely US classification is a foreign trust, which triggers Forms 3520 and 3520-A annually. The compliance cost ($500 to $1,500 per year in preparation fees) typically exceeds the tax benefit of the account. The practical advice for US citizens: do not open a TFSA.

Canadian mutual funds as PFICs. Nearly every Canadian-domiciled mutual fund and many Canadian-listed ETFs qualify as PFICs. The PFIC regime imposes punitive “excess distribution” taxation unless you make a Qualified Electing Fund or mark-to-market election. The safe path is to hold US-listed ETFs (which are not PFICs) in your US brokerage and keep Canadian-listed investments inside the RRSP, where the treaty election shelters the growth from current US taxation. The Form 8621 guide covers the reporting.

RRSP treaty election. The RRSP is the Canadian equivalent of a 401(k), and Canada treats it as tax-deferred. But the IRS does not recognize that deferral by default. Without the election under Article XVIII(7) of the treaty, the IRS taxes the annual growth (interest, dividends, capital gains) inside the RRSP on a current basis, even though you made no withdrawal. The election is a one-time statement attached to your US return, and once made it carries forward.

Roth IRA election. On the Canadian side, a separate one-time election on your first Canadian return preserves the Roth IRA’s tax-free status. Without it, Canada taxes the annual growth.

Social Security. Under Article XVIII(5) of the treaty, US Social Security benefits are taxable only in the country of residence. Once you are a Canadian resident, Canada taxes the benefit and the US does not withhold.

FEIE vs. FTC. The Foreign Earned Income Exclusion is technically available to Americans living in Canada, but it is almost never the right choice. The foreign tax credit produces a better result because Canadian tax rates are generally higher than US rates, generating excess credits that carry forward. Claiming the FEIE instead wastes those credits.

What is the first-year Canadian return checklist?

The items that must be addressed on the first Canadian tax return:

1. Residency start date. Stated on the T1 return (page 1). The CRA uses this to determine the period of worldwide income inclusion.
2. Worldwide income from the residency date forward. Employment income, investment income, business income, rental income, and any other income earned from the residency start date through December 31.
3. Foreign tax credits. Claim credits for US federal and state tax paid on income that is also taxable in Canada (Form T2209 for federal, provincial form for provincial credits).
4. Deemed-acquisition cost bases. Document and retain for all assets. The CRA does not require these on the return, but they are needed for every future disposition.
5. RRSP contribution room. New immigrants have no RRSP contribution room in the arrival year (room is based on the prior year’s Canadian earned income). Room begins to accumulate from the first year of Canadian earned income.
6. Provincial health insurance enrollment. Most provinces have a waiting period (up to 3 months). The OHIP waiting period for Ontario, for example, is the first day of the third month after establishing residency.
7. Canadian bank accounts, SIN application. A Social Insurance Number (SIN) is needed for working and filing taxes. Apply at Service Canada within the first few weeks.
8. FBAR and Form 8938 (US citizens). The first year you have Canadian accounts, report them on the FBAR and Form 8938 with the US return.
9. TFSA contribution room. New residents receive TFSA contribution room starting in the year they become resident (but only if they are 18 or older and have a valid SIN).
10. US retirement accounts (401(k), IRA, Roth IRA). Decide whether to leave in the US, roll over (if eligible), or withdraw. Each option has different cross-border tax consequences.

Related guides

• US citizen moving to Canada: tax planning guide
• The physical presence test: 330 days
• What to look for in a cross-border tax accountant
• US tax filing deadlines for Americans abroad

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