The Canadian bordering America is easily accessible. Migration from one country to the other is easily frequent, focusing on other factors like retirement and working.
In Canada, there is the added benefit, which is Canadian Medicare which puts the country in the spotlight. The people in America face almost no substantial or life threatening diseases. The country is one of the very best to relocate to.
There’s no denying the fact that settling and working in Canada is a complex process, especially considering the taxation system of the country and the USPS. Upon settling, there is a specific immigration process one must follow, which is intricate considering the taxation rules and laws. All working citizens must abide by the laws of taxation of both. Given the rules and laws set by IRS and CRA, this guide helps you abide by and follow the laws set by both countries.
Residency for Tax Purposes
In Canada: Your immigration status does not determine your residency status for tax purposes, but rather where your primary attachments reside. The Canada Revenue Agency (CRA) examines:
- The location of your home and family
- Canadian bank accounts and driver’s licenses
- Duration of physical presence in Canada
Depending on your particular situation, you can be classified as:
- A resident and taxed on your worldwide income
- A non-resident and taxed only on income sourced from Canada
- A deemed resident or non-resident for tax purposes under certain special treaty provisions
In the U.S: Unlike Canada, the U.S. tax system is based on citizenship and not residency. Even after relocating, you are required to file a tax return with the U.S. every year.
U.S. Tax Obligations After Moving
The fact that you live outside the U.S. does not mean you are free from U.S. tax obligations. As an American citizen, you are required to file:
- Form 1040 – U.S. citizen’s annual tax return
- FBAR (FinCEN 114) – foreign bank accounts that exceed $10,000 at any point during the year
- FATCA (Form 8938) – foreign assets above certain IRS thresholds
One of the most common mistakes that expats make is failing to report foreign assets, and the penalties for doing so can be severe.
Canadian Tax Filing Requirements
You need to file a T1 Income tax return and report on both global and Canadian income and pay taxes on them if you are classified as a Canadian resident for tax purposes. Some pointers to note are as follows:
- January 1 to December 31 is also the Canadian tax year for income taxes.
- You pay both Federal as well as the provincial income tax and the combined income tax may be higher than what you’d pay living in the US in some provinces.
- You can, however, enjoy some Canadian specific deductions as well as credits, such as the GST or HST and medical expense claims.
Tax Treaties & Credits
The U.S.-Canada Tax Treaty is designed to help eliminate the double taxation on the same income. Some of the primary features are:
- The Foreign Tax Credit (Form 1116) can be, in the case of US tax, a deductible Canadian tax.
- Tax Treaty Benefits covers pensions, Social Security, and certain investment income.
- Tie-breaker rules define certain rules of which country you are a resident country in the case where both USA as well as Canada both consider you a resident for tax purposes.
Being proactive is the best way to reduce the possibility of double taxation on the same income.
Impact on Retirement & Investments
The same principle applies to border crossings:
- 401(k) plans & IRAs – You can keep these. However, withdrawals may be taxed differently due to some treaty regulations.
- Social Security – As per the treaty, it is taxable income, but the treaty coordinates to prevent double taxation.
- Canadian Accounts – US considered RRSPs to be tax-deferred. However, TFSAs are not. They incur US administrative requirements.
Estate & Gift Taxes
Gift and estate taxes do not exist in Canada, however, they are in effect in the USA. An individual is considered a citizen of the US and as a result, is obliged to pay estate tax along with the global estate. On the other side of Canada, there is deemed disposition of capital property which triggers a tax on death events. Most cross borders estate planning is necessary for families with significant wealth.
Common Mistakes to Avoid
- Not closing US state residency – California and other states are the same. They will keep taxing you until you have completely lost ties.
- FBAR and FATCA reporting Forgetting – even the tiniest of accounts in Canada, are considered.
- The tax treaty is set aside – Misreporting a pension or an investment is an easy way to pay taxes twice.
When to Consult a Tax Professional
You may need specialized services if you possess:
- Multiple citizenship
- Complicated forms of investments or enterprises
- Significant financial retirements or estate holdings
- Contemplated relocation and stay partially in the United States and Canada
Cross-border tax specialists like Dimov Tax can assist in the strategic arrangement of your finances to reduce tax obligations in both countries. Reach out to us today for expert support.
FAQs
Do I have to pay U.S. taxes if I live in Canada?
Yes—U.S. citizens file Form 1040 annually (plus FBAR/FATCA as needed); use treaty rules and foreign tax credits to limit double tax.
How do I become a tax resident of Canada?
By establishing significant residential ties (home, spouse/dependents, IDs/bank accounts) and presence—CRA, not immigration status, determines it.
Will moving to Canada affect my Social Security?
You can still receive benefits; taxation is coordinated by the U.S.–Canada treaty to avoid double taxation, generally based on where you reside.
Can I keep my 401(k) or IRA after moving to Canada?
Yes—keep them in the U.S.; withdrawals may be taxed in Canada (and sometimes the U.S.), with treaty/foreign tax credits to offset.
Do I have to pay taxes twice if I move to Canada?
Not if you apply the treaty and claim foreign tax credits correctly—though you must still file in both countries when required.