Taxes for Americans Moving to Canada Explained

By Editor / June 05, 2025

Thinking about making the leap north? There’s more to the move than swapping states for provinces. International movers say that taxes catch more people off guard than packing or paperwork. That’s because U.S. citizens don’t stop paying taxes just because they leave. Canada has its own system, and it doesn’t always line up with what Americans expect. You could be taxed twice if you’re not careful. That’s why this topic matters. Learning how taxes for Americans moving to Canada work can save you thousands, not to mention the headache of audits and penalties. Let’s break it down clearly, section by section, without skipping the parts that actually cost you money.

Read more: Taxes for Americans Moving to Canada Explained

How Does Dual Taxation Work Between the U.S. and Canada?

Dual taxation means both countries want a share of your income. You earn money in Canada, and the CRA wants its piece. But so does the IRS. Every reputable international household moving company will tell you that Americans remain tax residents no matter where they live. The U.S. is one of the only countries that taxes based on citizenship instead of residency. So even if you move to Toronto and never step foot in the States again, you still file U.S. taxes every year. That includes wages, investment income, pensions, and business profits. In Canada, the average income tax ranges from 20% to over 50%, depending on the province and income level.

Ontario’s top marginal rate, for example, is 53.5% on income over CAD $240,000. Combine that with U.S. federal tax rates of up to 37%, and you can see how this gets messy fast. Without planning, you could easily pay over 70% of your income in taxes between the two countries. But if you use the tax treaty correctly—and apply the Foreign Tax Credit—you can legally avoid paying twice on the same money. Still, the responsibility is yours. Neither tax agency will chase you down to help you pay less.

What Does The U.S.-Canada Tax Treaty Actually Do?

The tax treaty between the U.S. and Canada is your best defense against double taxation. International piano movers say their clients often ignore this legal agreement until it’s too late. This treaty, first signed in 1980 and updated several times, outlines which country has taxing rights over specific types of income. For instance, Canada usually gets the first shot at taxing Canadian wages. The U.S. then allows you to use that paid Canadian tax to offset your U.S. liability. But to benefit, you must file Form 8833 and sometimes Form 1116. You also need to follow treaty rules on items like pensions, Social Security, rental income, and royalties.

Canadian Old Age Security benefits, for example, are partially taxable in the U.S., but you can limit that exposure using the treaty. The forms can be tedious and confusing, but the savings can be significant. We’re talking thousands—if not tens of thousands—depending on your situation. If you don’t file correctly, the IRS ignores the treaty and taxes everything as if you never left. That mistake isn’t just frustrating—it’s financially devastating.

Do You Still Have To File U.S. Taxes While Living in Canada?

Yes, and the IRS won’t forget you. Fine art shipping services recommend setting up a long-term tax strategy before your address changes. Every U.S. citizen and green card holder must file an annual Form 1040, even while living in Canada full-time. That includes reporting foreign income, assets, and bank accounts. You’ll also file Schedule B if you hold foreign bank accounts, and possibly Form 8938 for foreign financial assets exceeding $200,000 (for joint filers living abroad). And don’t forget FBAR—if your total foreign account balance ever hits $10,000 USD, even briefly, you must file FinCEN Form 114. Failing to file FBAR can cost you $10,000 per account per year.

If the IRS believes it was willful, penalties skyrocket to $100,000 or 50% of the account balance—whichever is greater. That’s not a typo. Any income from a Canadian employer must still be reported to the IRS, even if it’s already taxed up north. One reason taxes for Americans moving to Canada get so complicated is that people assume the systems communicate—they don’t. Filing late might slide once with a valid excuse, but repeat it and you’re facing audits, steep fines, and even passport suspension. Crossing the border doesn’t mean your U.S. tax record resets—it follows you.

How Does Canada Decide If You’re A Resident for Tax Purposes?

Canadian tax residency isn’t about visas or work permits. It’s about your life. Professionals offering packing services for overseas shipping tell clients that even part-time moves can trigger full tax residency. If you rent or buy a home, open Canadian bank accounts, enroll children in Canadian schools, or register for health services, you’ll likely be seen as a resident. Canada uses a “residential ties” test to determine your status. Once you’re a resident, you owe taxes on your worldwide income, just like in the U.S. The CRA looks at the entire calendar year. If you arrive in October but sign a 12-month lease and bring your spouse and kids, you may be taxed as if you lived there all year. Tax rates in Canada start at 15% federally and go as high as 33% for top earners.

Provinces add another 5% to 25%, depending on your income. Residency also affects access to health care, child benefits, and eligibility for pension programs. If you leave the U.S. in April but only rent an Airbnb in Vancouver, you might still be considered a U.S. resident for Canadian tax purposes. You can file a deemed non-resident election in rare cases, but it’s complicated and needs CRA approval. Bottom line—if you live like a Canadian, expect to be taxed like one.

What Is The Foreign Earned Income Exclusion and Can You Use It?

The Foreign Earned Income Exclusion (FEIE) lets you exclude up to $126,500 USD of foreign income from U.S. taxes in 2025. Moving to Canada from USA doesn’t automatically qualify you. You must pass either the bona fide residence test (living in Canada for a full calendar year with a permanent home) or the physical presence test (330 full days abroad in any 12-month period). You claim the exclusion using Form 2555. But this only applies to earned income—salary, wages, and self-employment. It doesn’t cover rental income, dividends, capital gains, or pensions.

When income exceeds the FEIE cap, Americans moving to Canada still owe U.S. taxes on the rest. For example, if you earn $150,000 in Canadian salary, only $126,500 is excluded. The remaining $23,500 gets taxed in the U.S. at your marginal rate. Also, the FEIE is all-or-nothing each year. If you move mid-year and don’t qualify under either test, you can’t claim anything. Choosing FEIE also means you can’t claim the Foreign Tax Credit on the same income, so it’s not always the best choice. In high-tax provinces like Quebec, you might save more using the credit instead of the exclusion.

How Does The Foreign Tax Credit Actually Help?

The Foreign Tax Credit (FTC) lets you offset U.S. taxes with what you already paid to Canada. International movers in NYC suggest using Form 1116 to claim this credit properly. Say you paid $40,000 in Canadian income tax. If your U.S. tax bill is $35,000, you could wipe out most or all of it using the FTC. But the credit must apply to the same type of income. You can’t use taxes paid on Canadian dividends to offset U.S. taxes on wages. There’s also a carryback and carryforward option—carry excess credits back one year or forward up to ten years. That flexibility helps if your income swings from year to year. One pitfall is timing.

If you file your U.S. return before you finish your Canadian return, you might underreport your foreign tax credit. You can amend the return later, but that delays refunds and adds to your paperwork. If you qualify for both the FEIE and FTC, choosing between them depends on your income mix. People earning below $100K may benefit more from the FEIE. Those earning more, or with complex income sources, usually get better savings from the credit.

What Reporting Rules Apply to Foreign Bank Accounts?

Opening a Canadian bank account? Better add it to your IRS watchlist. Container shipping providers often remind clients that foreign financial accounts come with serious reporting obligations. The FBAR kicks in once your total foreign account balances exceed $10,000 USD at any time during the year—even for one day. That includes checking accounts, savings accounts, RRSPs, and even joint accounts with a non-U.S. spouse. FBAR (FinCEN Form 114) is filed separately from your tax return and goes directly to the U.S. Treasury Department.

Miss it, and you could owe $10,000 per account, per year. The stakes get even higher if the IRS believes you intentionally skipped filing. Then, penalties can reach $100,000 or 50% of the account balance—whichever is higher. FATCA adds another layer. If your foreign financial assets exceed $200,000 (joint) or $100,000 (single) while abroad, you must file Form 8938 with your 1040. The IRS uses FATCA to cross-check with banks, which are required to report your holdings. If you’re thinking of hiding accounts or “forgetting” to mention them, think again. The penalties are severe, and the audit risk is real.

What Happens To Your Retirement Accounts After Moving?

U.S. retirement accounts and Canadian retirement plans don’t play well together. So, it’s better to leave them separate to avoid unnecessary tax headaches. If you own a 401(k) or IRA, you can usually keep it after moving. But the IRS will tax withdrawals regardless of your new country. Canada may tax them too, depending on how you report it and what the treaty allows. One reason taxes for Americans moving to Canada get tricky is how differently each country treats retirement income. Canadian RRSPs and TFSAs, for example, grow tax-deferred in Canada, but not in the U.S.—unless you file Form 8891 (or a treaty election) every year. That means the IRS could treat annual gains in a TFSA as ordinary income unless everything is reported correctly.

Roth IRAs lose their tax-free status in Canada unless reported early and consistently. If you roll your U.S. IRA into a Canadian RRSP or vice versa, you could trigger immediate taxation and penalties. Withdrawing from a 401(k) early could cost you 10% in IRS penalties plus regular tax. In Canada, early RRSP withdrawals are taxed at up to 30% depending on the amount. Don’t try to combine plans or make assumptions. Instead, document everything and keep your contributions compliant on both sides.

How Do Capital Gains Taxes Differ Between The Two Countries?

The capital gains system in Canada sounds simple—50% of your gains are taxable. But when you layer in U.S. rules, it becomes a maze. This is where the most unexpected tax bills show up. Let’s say you buy a rental property in Montreal and sell it five years later. Canada will tax 50% of your net gain as income. If you make CAD $200,000 in profit, you’ll be taxed on CAD $100,000 at your marginal rate. That could easily mean CAD $40,000 or more in tax. But the U.S. still wants to tax that full $200,000 as a capital gain.

If it was held for more than a year, the U.S. rate is usually 15% to 20%, plus 3.8% for high earners due to the Net Investment Income Tax. That’s another $40,000+ in tax exposure. Yes, you can use the Foreign Tax Credit, but not all of it may apply depending on your timing and filing. Also, if the Canadian dollar weakens between purchase and sale, you may owe more in U.S. tax even if your actual profit in CAD is less. These mismatches cause huge problems. The only way to avoid double pain is precise record-keeping, careful filing, and treaty guidance.

Do You Really Need a Cross-Border Tax Specialist?

Yes, absolutely. Hire someone before you even file your last U.S. return from inside the country. Taxes for Americans moving to Canada are one of the most complex areas in finance. You’re dealing with two governments, different currencies, clashing deadlines, and incompatible forms. A qualified tax professional—ideally someone with CPA credentials in the U.S. and Canada—can help you avoid costly errors. Expect to pay between $500 and $2,500 per year for a reliable cross-border tax specialist, depending on your income complexity, number of forms, and investment holdings.

But that’s a small price to pay if they save you from a $10,000 FBAR fine or a double-taxed capital gain. Look for experts who know the treaty, FATCA, FBAR, and retirement plan rules. DIY tax prep software usually doesn’t cut it here. You need someone who speaks both tax codes fluently, and knows how to keep the IRS and CRA from taking more than they should.

Getting Ahead of Taxes for Americans Moving to Canada

No one wants to be blindsided by a tax bill, especially after an international move. But skipping the research is a guaranteed way to lose money. Taxes for Americans moving to Canada aren’t optional, and they aren’t easy. From dual taxation and bank reporting to retirement accounts and capital gains, it’s all more complicated than it looks. But with the right tools, help, and awareness, you can move confidently—and legally—with fewer financial surprises.