Hi,
If you moved from Canada to Texas, you got one big win: no state income tax. But once you are a US tax resident, the IRS taxes your worldwide income and expects reporting on your Canadian accounts, and Canada can still have claims on you.
How does the tax actually work for a Canadian living in Texas?
- The US taxes your worldwide income – you are a US tax resident if you hold a green card or meet the substantial presence test, which counts your days here this year, plus one third of last year’s and one sixth of the year before
- Leaving Canada doesn’t automatically end Canadian residency – a home, a spouse, or dependants still in Canada can keep you tied there, and when both countries claim you, the treaty tie-breaker looks at your permanent home, your center of vital interests, and your habitual abode
- Canadian income can be taxed in both countries – Canada usually withholds 25% on payments to non-residents unless a treaty reduces it, and the US gives you a foreign tax credit on Form 1116 so the same income isn’t taxed twice
What every Canadian in Texas should know:
- RRSPs and RRIFs – under the treaty, growth stays tax deferred in the US without a separate election, but the account still has to be reported, and withdrawals are taxable in the US with a credit for Canadian tax withheld
- TFSAs and RESPs – Canada doesn’t tax them, but the US generally does not recognize that treatment, and a non-resident can’t contribute to a TFSA without a 1% monthly tax on the excess
- Canadian mutual funds and ETFs – often classified as passive foreign investment companies, which means extra reporting on Form 8621 and a punitive tax method. This is where the largest surprises sit
- Departure tax – when you left Canada, certain property such as shares was treated as sold at fair market value, and a list of your property is required if it was worth more than $25,000
- A Canadian home or rental – a non-resident selling Canadian real property goes through a certificate process, and the buyer can withhold 25% of the proceeds until it’s done. Rent is withheld at 25% on the gross unless you file a section 216 election
- Canadian ties – a bank account, credit card, driver’s licence, or provincial health card can be seen as ties that support Canadian residency
The tax itself is manageable. The danger is what goes unreported. The FBAR is required if your Canadian accounts total more than $10,000 at any time during the year, and Form 8938 applies above $50,000 at year end or $75,000 at any time for a single filer. Year end is the best time to review your accounts, before withdrawals, sales, and moves create tax you could have planned for.
That’s why we help Canadians in Texas with both sides of the border, with one team that understands how the US and Canadian rules fit together:
- A residency and status review – we check your US and Canadian residency, including the treaty tie-breaker where it applies
- US returns with Canadian income – foreign tax credits, rental income, and pensions reported correctly so the same income isn’t taxed twice
- FBAR and Form 8938 reporting – your Canadian accounts reported accurately and on time
- A Canadian account review – RRSPs, TFSAs, RESPs, and mutual funds, with a plan for each
- Home sale and rental planning – the withholding, the certificate process, and the credits, handled before you sign
- Cross-border investment planning – holdings that fit US rules, built around your goals with our in-house Certified Financial Planner
Reply to this email by Friday and we’ll set up a free 15 minute call with our senior tax advisor. Bring your most recent US return, your Canadian account statements, and your latest Canadian notice of assessment if you have one, and we’ll show you where your situation needs attention and what to fix first.
Sincerely,
—
George Dimov, CPA
Licensed and Insured
(833) 829-1120 toll free
(212) 994-8081 Fax
www.dimovtax.com