Pre-Move Tax Planning: Before Moving Between Canada and the US

The biggest cross-border tax mistakes are made before the move, not after. Collapsing a TFSA a month too late creates a foreign trust problem. Missing the RRSP contribution deadline before departure wastes a deduction that never comes back. Selling an asset two weeks after leaving Canada instead of two weeks before can change which country taxes the gain. The planning window is the 6 to 12 months before your departure date, and the decisions made in that window lock in the tax position for years.

What should I do 6 to 12 months before the move?

Model both returns. Before making any decisions, model the departure-year Canadian return and the first-year US return side by side. The departure tax on the Canadian return and the dual-status vs full-year election on the US return interact through the FTC. The model tells you which actions save the most.

• Maximize RRSP contributions. RRSP contributions are deductible against Canadian income. If you are in a high Canadian bracket (over $220,000 in Ontario, the top marginal rate is ~53.5%), a $30,000 RRSP contribution saves ~$16,000 in Canadian tax. After you leave, you lose the ability to contribute (non-residents cannot earn new RRSP room). Contribute the maximum before departure.
• Collapse the TFSA. The TFSA is a foreign trust for US purposes. Once you become a US resident, the growth is taxable, and you may owe Form 3520/3520-A. Withdraw the full balance before the move. There is no Canadian tax on the withdrawal (it is a tax-free account), and the withdrawal does not reduce your lifetime contribution room (you can re-contribute if you return to Canada).
• Review investments for PFIC exposure. If you hold Canadian mutual funds or ETFs, they may be PFICs (passive foreign investment companies) once you become a US person. Sell them before the move and reinvest in US-listed equivalents. Selling before departure avoids the PFIC regime entirely.

What should I do 1 to 3 months before the move?

Set the departure date. The departure date determines when Canada’s deemed disposition occurs and when provincial health insurance ends. It also determines the split between Canadian-resident income and non-resident income for the departure year. If you have significant income in the first half of the year, a mid-year departure date may be advantageous (lower Canadian income, lower Canadian tax, more FTC available on the US side). If you have significant year-end income (a bonus, stock vesting), the timing relative to the departure date determines which country taxes it.

• Harvest or absorb capital losses. If you have Canadian net capital loss carryforwards, trigger capital gains before departure to absorb them. After the move, those losses are stranded in Canada with no Canadian gains to offset them.
• Document FMV of all assets. On the departure date, every asset gets a fair market value snapshot for the deemed disposition. For publicly traded securities, the closing price on the departure date is the FMV. For non-publicly-traded assets (private company shares, real property, art), get appraisals.
• Notify employers and institutions. Notify your employer of the move. If you have stock options or RSUs, confirm the vesting schedule relative to the departure date (the RSU allocation between countries depends on working days during the vesting period). Notify Canadian financial institutions of your upcoming non-resident status.

What should I do in the departure month?

Cancel provincial health insurance. Each province has its own rules. Ontario coverage ends at the end of the third month after departure. Quebec coverage can end immediately. BC coverage ends at the end of the month after departure. Arrange US health insurance to start on the arrival date.

• File NR301/NR5 with Canadian payers. To get the treaty-reduced Part XIII withholding rate on future Canadian-source payments (RRSP withdrawals, pension, dividends), provide each Canadian payer with the appropriate form before or immediately after departure.
• Set up FBAR tracking. From the date you become a US resident, your Canadian accounts become “foreign” for FBAR purposes. Start tracking the maximum balance of each account for the FBAR filing.

What about moving from the US to Canada?

The pre-move planning for a US-to-Canada move is different because the US does not have a departure tax (for citizens; non-citizens have the exit tax on green card abandonment). The key actions:

• Maximize Roth conversions. Converting traditional IRA or 401(k) to Roth while in a low-tax US state (or before moving to a high-tax Canadian province) locks in the lower US tax rate. Canada does not tax the conversion (the Roth is sheltered under the treaty), but the US tax on the conversion is lower before the move if you are in a low-bracket year.
• Sell PFICs in the US. If you hold non-US mutual funds (which are PFICs), selling before the move avoids the punitive PFIC regime on the US return.
• Document US cost basis. Canada will set the ACB of your assets to FMV on the date of immigration under ITA 128.1(1)(c). But the US basis stays at the original purchase price (for citizens who continue filing). Track both.

What should I do next?

Start 6 to 12 months before the move. Model both returns first, then execute the actions in order of deadline. The departure-date choice, the RRSP contribution, the TFSA collapse, and the investment restructuring all need to happen before the move, not after.

• Departure tax when leaving Canada, the deemed disposition mechanics
• Dual-status vs full-year election, the US first-year filing choice
• Is my TFSA a foreign trust?, why the TFSA must be collapsed before the move
• Moving to the US from Canada: tax checklist, the post-move checklist
• Year-end tax planning cross-border, the annual planning cycle

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