Need help? US tax returns for Americans living in Canada →
Moving to Canada doesn’t end your US tax obligations. If you are a US citizen or green card holder, you generally file in both countries every year. The good news is that, with the right filings, many people owe little or nothing to the IRS. The bad news is that the penalties for missing the paperwork are steep. This guide explains how the two systems fit together.
Who has to file
The US taxes its citizens and green card holders on worldwide income wherever they live, including Canadian salary, business income, rent, interest and gains. That applies to “accidental Americans” who were born in the US but never lived there, and to people who hold a green card but live in Canada. You generally file a Canadian return and a US Form 1040.
Key dates
- April 15: the normal US due date, and when any tax owed must be paid to avoid interest.
- June 15: automatic extension to file for taxpayers living abroad (interest still runs from April 15).
- October 15: further extension on request, and the extended FBAR deadline.
Avoiding double tax
Two main tools stop you being taxed twice on the same income:
- Foreign tax credit (Form 1116): Canadian income tax you paid offsets US tax on the same income.
- Foreign earned income exclusion (Form 2555): excludes a capped amount of earned income, but it doesn’t help with investment income and can interact badly with other planning, so we compare it with the credit before choosing.
Illustrative example
Suppose you earn the equivalent of US$80,000 of salary in Montréal. Canadian and Quebec tax on that income is often higher than the US tax on the same amount. The foreign tax credit then wipes out the US tax, and the extra Canadian tax can be carried forward for up to ten years. You still file Form 1040, but you owe nothing. Your own figures will depend on income type, deductions and exchange rates.
Reporting beyond the return
- FBAR (FinCEN Form 114): required when the combined value of your foreign financial accounts exceeded US$10,000 at any time in the year. It is filed online, not with the tax return.
- Form 8938: required at higher thresholds for specified foreign financial assets; the thresholds are higher for people living abroad.
- Form 8621: may be needed for Canadian mutual funds and ETFs, which the US can treat as passive foreign investment companies, with punitive tax if left unreported.
- Forms 3520 and 3520-A: may be required for certain Canadian trusts, and the IRS has treated RESPs and TFSAs as trusts in some situations.
RRSPs, TFSAs and other Canadian accounts
The Canada–US tax treaty protects RRSP growth from US tax if you make a simple election on your return. A TFSA is not tax-free for US purposes: growth is generally taxable in the US and may add reporting. Buying Canadian funds, or setting up a RESP, without checking the US side first, is among the most expensive mistakes we see.
Behind on your US filings?
Many Americans in Canada learn of these rules years late. The IRS has programs, such as the Streamlined Foreign Offshore Procedures, designed for people whose failure to file was not willful. Penalties can be reduced or eliminated, but you must come forward before the IRS contacts you. Read our guide to late and unfiled returns for the Canadian side.
What to gather
- Your Canadian slips and notices of assessment.
- Year-end balances for every foreign bank, investment and registered account.
- Details on any Canadian corporation or trust you control.
- Prior US returns, if any, and your SSN or ITIN.
This guide is general information, not tax advice. We prepare US and Canadian returns together, and our US CPA reviews the US filings. See our personal tax returns service or contact us to get a quote.