Moving from Canada to the US can bring new career opportunities, business prospects, and lifestyle changes. However, before relocating, it is important to understand how the move affects your taxes. Your Canadian tax responsibilities do not automatically end when you cross the border. Your residency status, Canadian assets, investments, and income sources all influence what you may owe.
If you are planning to move permanently, understanding the tax implications of moving from Canada to the US can help you avoid unexpected liabilities and manage your financial transition more effectively.
1. Your Canadian Tax Residency Status Will Change
The first step is determining whether you have officially become a non-resident of Canada for tax purposes.
The Canada Revenue Agency (CRA) considers several factors when assessing residency, including:
- Maintaining a home in Canada.
- Keeping your spouse or dependents in the country.
- Retaining personal and financial connections to Canada.
- Establishing a permanent home in the United States.
Simply spending time outside Canada does not automatically make someone a non-resident. Generally, you must establish residential ties in another country and sever your significant residential ties with Canada.
Under the Canada–US tax treaty, additional residency tie-breaker rules may apply when both countries consider you a tax resident.
Your departure date is generally determined by the latest of the date you leave Canada, the date your spouse or dependants leave, and the date you establish residency in the United States, subject to the applicable circumstances.
2. You May Have to Pay Canadian Departure Tax
One of the most important financial considerations when leaving Canada is departure tax.
When you become a non-resident, Canada generally treats certain assets as if you sold them at their fair market value immediately before leaving. This is known as a deemed disposition.
For example, if you purchased investment shares for $20,000 and their fair market value is $35,000 when you leave Canada, the deemed capital gain is $15,000.
This gain may create a Canadian tax liability even though you have not actually sold the shares.
Departure tax generally applies to eligible assets such as:
- Shares and certain investment holdings.
- Jewellery and valuable collections.
- Other qualifying capital property.
However, Canadian real estate, certain registered retirement accounts, and other specified property are generally excluded from the standard deemed-disposition rules.
You may also need to file:
- Form T1243: Reports deemed dispositions and resulting capital gains or losses.
- Form T1161: Lists your property if the total fair market value of reportable property exceeds $25,000, subject to exclusions.
The CRA also allows eligible taxpayers to elect to defer payment of departure tax by filing Form T1244, subject to applicable conditions.
3. What Happens to Your Canadian Income After Moving?
Your Canadian income tax obligations depend on your residency status.
For the portion of the year you remain a Canadian resident, you generally report your worldwide income, including employment earnings, business income, and investment income.
After becoming a non-resident, you are generally subject to Canadian tax only on applicable Canadian-source income.
For example, if you move to the US but continue receiving rental income from a Canadian property, you may still have Canadian tax and reporting obligations.
Non-residents generally face 25% withholding tax on gross Canadian rental income. However, filing under Section 216 of the Income Tax Act may allow eligible individuals to calculate tax on net rental income instead.
Canadian pension income, dividends, and other payments may also be subject to withholding tax, with applicable treaty provisions potentially reducing the rate.
4. How Will the United States Tax You?
Once you establish tax residency in the United States, your worldwide income may become subject to US federal income tax.
The IRS generally determines residency through two main tests:
- Green Card Test: You qualify as a lawful permanent resident under US immigration law.
- Substantial Presence Test: You meet the applicable physical-presence requirements, generally including 31 days in the current year and 183 weighted days over a three-year period.
This means that obtaining a green card is not the only way to become a US tax resident.
Depending on your circumstances, you may need to file a US federal income tax return and potentially a state income tax return.
The year you move can also involve part-year residency or dual-status filing requirements.
5. Can You Be Taxed in Both Countries?
Yes. During the transition, both countries may have a claim to tax certain income.
However, the Canada–US tax treaty and foreign tax credits can help reduce double taxation.
For example, if you earn employment income in the United States while still considered a Canadian tax resident, Canada may require you to report that income. You may be eligible to claim a foreign tax credit for qualifying US income taxes paid.
The treaty also establishes rules for determining residency and allocating taxing rights over different income types.
It is important to remember that the treaty does not automatically eliminate filing obligations in either country.
6. What Happens to Your TFSA and Canadian Investments?
Before relocating, review your registered accounts and investment holdings.
You can generally keep your Canadian Tax-Free Savings Account (TFSA) after becoming a non-resident. However, you cannot make tax-free contributions while non-resident, and the United States does not generally recognize the TFSA’s Canadian tax-free treatment.
READ MORE: Cross-Border Tax and Accounting Services in Canada & the USA
Non-resident TFSA contributions can attract a 1% monthly Canadian tax while the contribution remains in the account.
Canadian RRSPs may receive different treatment under the Canada–US tax treaty, so their reporting and withdrawal implications should be reviewed separately.
7. Plan Your Move Before Leaving Canada
A well-planned move can help prevent unnecessary tax complications. Before relocating, consider:
- Review your Canadian residential ties and establish your expected departure date.
- Obtain fair market valuations for assets that may be subject to departure tax.
- Identify your Canadian and US filing requirements.
- Review your TFSA, RRSP, investments, and Canadian property.
- Notify relevant Canadian financial institutions and income payers of your non-resident status.
- Keep records of your income, assets, departure date, and taxes paid in both countries.
Business owners should also review corporate ownership, management arrangements, and potential cross-border reporting obligations before moving.
Faqs About Moving from Canada to the US?
Do I need to file a Canadian tax return after moving to the US?
You may need to file a departure-year Canadian tax return. In later years, filing may still be required if you receive certain Canadian-source income or have other Canadian reporting obligations.
Do I automatically pay departure tax when leaving Canada?
Not necessarily. Departure tax applies to certain property when you cease Canadian tax residency. The type and value of your assets determine whether a deemed disposition creates a taxable gain.
Can I keep my Canadian bank account after moving to the US?
Generally, yes. However, you should notify your financial institution of your non-resident status because different account and withholding rules may apply.
Does the Canada–US tax treaty prevent double taxation?
The treaty provides rules and relief mechanisms to reduce double taxation, including foreign tax credits in appropriate circumstances. However, it does not remove every filing or tax obligation.
Get Professional Advice Before Your Move
Moving from Canada to the US involves more than changing your residential address. Your departure date, tax residency, investments, and continuing Canadian income can all affect your financial obligations.
At ICTax, professional cross-border tax guidance can help you understand Canadian departure requirements, US tax residency, and applicable treaty provisions. Contact our team before relocating to review your circumstances and plan your tax transition.
Disclaimer: This article is for general informational purposes only and does not constitute tax or legal advice. Tax outcomes depend on individual circumstances and applicable Canadian and US tax laws.
