US Expat Tax CPA for Americans Living in Canada
Living in Canada does not end your US tax obligations. As a US citizen or green card holder, you continue to file a US tax return and report your worldwide income even after moving abroad.
For most Americans in Canada, the difficult part is not tax on the paycheck. Canada and the United States have an income tax treaty and a Social Security totalization agreement, and Canadian tax rates are often higher than US federal rates.
The difficult part is everything around the paycheck. TFSAs, RESPs, Canadian mutual funds, Canadian corporations, RRSPs, and even the sale of your Canadian home are all treated differently by the United States than they are by Canada.
Egan Tax works with Americans living in Canada, and with Canadians and returning Americans moving to the United States, on the US side of their cross border tax situation.
I work directly with clients on issues including the Foreign Tax Credit, RRSPs, TFSAs, RESPs, PFICs, Canadian corporations and Form 5471, FBAR, Form 8938, arrival and departure year returns, state tax residency, and other US international tax matters. When an issue depends on Canadian law, I coordinate with your Canadian accountant rather than trying to replace them.
Who This Page Is For
Egan Tax works with Americans and cross border taxpayers including:
US citizens and green card holders living and working in Canada
Americans with an RRSP, RRIF, TFSA, RESP or FHSA
Americans who own Canadian mutual funds or ETFs
Americans who own all or part of a Canadian corporation, including holding companies, real estate companies and professional corporations
Canadians and returning Americans moving from Canada to the United States
People who live in one country and work in the other
Retirees receiving Social Security, CPP or OAS across the border
Americans who have missed US tax returns or foreign account reporting
Key US Tax Issues for Americans in Canada
Foreign Tax Credit vs. Foreign Earned Income Exclusion
Americans living in Canada can use the Foreign Tax Credit, the Foreign Earned Income Exclusion, or in some situations both for different types of income.
Canadian federal and provincial income tax is often higher than US federal income tax on the same earnings. In those situations, the Foreign Tax Credit eliminates the US tax on Canadian wages, and unused credits carry forward for up to ten years.
The Foreign Earned Income Exclusion can produce a similar result on wages, but it has tradeoffs. Excluded income does not count as compensation for IRA contributions, and you cannot claim the refundable Additional Child Tax Credit in a year you claim the exclusion.
The maximum exclusion for 2026 is $132,900. If you revoke an exclusion election, you cannot claim the exclusion again for five years without IRS consent.
I calculate the return both ways and look beyond the current tax year before recommending an approach.
RRSPs, TFSAs, RESPs and Other Canadian Accounts
Canadian registered accounts do not all receive the same treatment under US tax law.
RRSPs and RRIFs
The US Canada tax treaty defers US tax on income earned inside an RRSP or RRIF until you take distributions. The old Form 8891 is no longer required. RRSPs and RRIFs are still reported on the FBAR and, when the thresholds are met, on Form 8938.
TFSAs
A TFSA does not receive the same treaty protection. Income and gains inside a TFSA are taxable on your US return each year, even though Canada does not tax that income. The account may also create additional US reporting depending on how it is structured, and Canadian mutual funds or ETFs inside it are PFICs.
A Canadian account that is tax free or tax deferred in Canada is not automatically tax free or tax deferred in the United States.
RESPs and FHSAs
Income and government grants inside an RESP are taxable to a US person who owns the account, and additional reporting may apply depending on the account structure. The US treatment of an FHSA should also be reviewed rather than assuming the Canadian treatment carries over.
Because the result can depend on the specific account and who owns it, these accounts should be reviewed individually.
Canadian Mutual Funds and ETFs Can Create PFIC Problems
One of the biggest US tax issues for Americans living in Canada is investing in Canadian mutual funds and Canadian listed ETFs.
For US tax purposes, these funds are treated as Passive Foreign Investment Companies (PFICs), even when the fund itself invests primarily in US stocks.
PFICs are reported on a separate Form 8621 for each fund each year. Without an election, gains and certain distributions are taxed at the highest ordinary rate plus an interest charge. A timely Qualified Electing Fund or mark to market election produces a far more reasonable result, and some Canadian fund companies publish the annual information needed to make a QEF election.
These rules apply to Canadian funds held in taxable accounts, TFSAs and RESPs. Form 8621 is generally not required for funds held inside an RRSP or RRIF, because the treaty defers that income until distribution.
Before investing in a Canadian mutual fund or ETF, understand the US tax consequences first.
Canadian Corporations and Form 5471
Owning a Canadian corporation creates some of the most complicated US tax issues on this page.
If you own 10% or more of a Canadian corporation, you have a Form 5471 filing requirement. If US shareholders collectively own more than 50%, the company is a controlled foreign corporation for US tax purposes. That can result in US tax on certain corporate income even when the corporation does not distribute the money to you.
These rules apply to owner managed businesses, holding companies, real estate companies and professional corporations. A holding company that owns an operating company requires a separate Form 5471 for each corporation. The penalty for a missed Form 5471 starts at $10,000 per form per year.
How you structure compensation, dividends, ownership, distributions and a potential wind up all affect the US result. These decisions are better modeled before year end than after the return is due.
FBAR and Form 8938
Your Canadian financial accounts are foreign accounts for US reporting purposes. That includes checking and savings accounts, RRSPs, RRIFs, TFSAs, RESPs, FHSAs, brokerage accounts, and certain accounts you can sign on for a Canadian company.
The FBAR applies when the combined maximum value of your foreign financial accounts exceeds $10,000 at any point during the year.
Form 8938 applies at higher thresholds. For taxpayers living abroad, it is required when specified foreign financial assets exceed $200,000 at year end or $300,000 at any time for unmarried taxpayers, and $400,000 at year end or $600,000 at any time for married taxpayers filing jointly.
Neither form is itself a tax, but failing to file required international information returns can result in significant penalties.
Social Security and Self Employment
The United States and Canada have a Social Security totalization agreement designed to prevent workers from paying into both systems on the same earnings.
If you are self employed and living in Canada, you pay into the Canada Pension Plan or Quebec Pension Plan and are exempt from US self employment tax. Keep a certificate of coverage to support the exemption on your US return.
The income tax treaty also covers benefits paid across the border. US Social Security paid to a resident of Canada is taxable only in Canada. CPP and OAS paid to a resident of the United States are taxable only in the United States.
Moving From Canada to the United States
A significant part of the Canada work at Egan Tax involves Americans and Canadians moving from Canada to the United States. Moving south creates its own set of US tax issues, and most of them have better answers before the move than after.
Canadian Departure Tax and the Treaty Election
When you give up Canadian tax residency, Canada generally treats you as having disposed of certain property at fair market value on the date you leave. Your Canadian accountant handles the Canadian departure return.
On the US side, the treaty provides an election that can prevent the same gain from being taxed again later by the United States. The election has to be made on the appropriate US return.
Your First US Tax Return
The year you move can involve a part year or dual status return, depending on your circumstances, and the date US tax residency begins matters. State tax residency is a separate issue under each state's own rules. Your federal and state residency dates do not have to be the same.
Canadian Funds Become PFICs
Canadian mutual funds and ETFs become PFICs once you become a US tax resident. The first US tax year is the best opportunity to address those investments and make elections. Waiting makes the available options more complicated and more expensive.
Your Canadian Corporation Comes With You
If you own a Canadian corporation and become a US person, the corporation becomes a controlled foreign corporation if US shareholders own more than 50%. Winding up the corporation, distributing retained earnings or restructuring can have very different consequences before and after US residency begins.
RRSPs Can Stay
Moving to the United States does not mean you need to close your RRSP. The treaty deferral continues. Canada generally imposes withholding tax on distributions to nonresidents, and the United States allows a foreign tax credit for that Canadian tax.
Selling Your Home in Canada
Selling a Canadian home can create an unexpected US tax issue.
Canada generally does not tax the gain on a qualifying principal residence. The United States applies its own rules, including the Section 121 exclusion of up to $250,000 for an individual or $500,000 for a married couple filing jointly when the ownership and use requirements are met.
The US calculates the gain in US dollars. The exchange rates on the day you bought and the day you sell can create a US dollar gain even if the property's value barely changed in Canadian dollars. Paying off a Canadian dollar mortgage can also create a separate currency gain.
If you are married to a Canadian who is not a US person, who holds title can also affect the US result. Review the US consequences before you list the property, not after closing.
What Egan Tax Handles for Americans in Canada
Egan Tax provides US tax preparation and international tax support for Americans living in Canada and people moving between Canada and the United States, including:
- Form 1040 and Foreign Tax Credit reporting
- Form 2555 and Foreign Earned Income Exclusion
- FEIE vs. Foreign Tax Credit modeling
- RRSP, RRIF, TFSA, RESP and FHSA reporting
- FBAR / FinCEN Form 114
- Form 8938
- Form 8621 and PFIC reporting, including QEF and mark to market elections
- Form 5471 for Canadian corporations
- Section 962 elections and Canadian corporate planning
- Forms 3520 and 3520-A when applicable
- Treaty elections and Form 8833 disclosures
- Arrival year, departure year and dual status returns
- State part year and nonresident returns
- Streamlined Filing Compliance Procedures
- Coordination with your Canadian accountant
Frequently Asked Questions
Do I still have to file a US tax return if I live in Canada?
Yes. US citizens and green card holders continue to file US tax returns on their worldwide income even when living permanently in Canada. The Foreign Tax Credit often reduces or eliminates US federal income tax, but it does not eliminate the filing requirement.
Should I use the Foreign Tax Credit or Foreign Earned Income Exclusion?
For most Americans living in Canada, the Foreign Tax Credit, because Canadian tax is usually higher than US federal tax on the same income. The credit also preserves benefits that are lost with the exclusion, including IRA contribution eligibility and the refundable child tax credit. I calculate both and consider the longer term consequences before recommending one.
Is my TFSA tax free in the United States?
No. The United States does not treat a TFSA the way Canada does. Income and gains inside the account are taxable on your US return each year, additional reporting may apply, and Canadian mutual funds held inside it create PFIC reporting.
Do I need to report my RRSP?
Yes, but the treaty defers US tax on an RRSP until you withdraw. The account is still reported on the FBAR and, when the thresholds are met, on Form 8938.
What about an RESP for my children?
If you are the subscriber, the income and government grants inside the RESP are taxable to you in the US each year, and additional reporting may apply. Having a spouse who is not a US person act as subscriber is a common approach.
I own a Canadian corporation. What do I have to file?
Form 5471 for each corporation, every year, with your Form 1040. You may also owe US tax on certain corporate income even if you took no dividends. The penalty for a missed Form 5471 starts at $10,000 per form per year. Canadian corporations should be reviewed before year end and, especially, before a move to the United States.
I am self employed in Canada. Do I owe US self employment tax?
No, as long as you are covered by CPP or QPP. The totalization agreement assigns self employed residents of Canada to the Canadian system. Keep a certificate of coverage to support the position.
How are Social Security, CPP and OAS taxed across the border?
Under the treaty, US Social Security paid to a resident of Canada is taxable only in Canada. CPP and OAS paid to a resident of the United States are taxable only in the United States.
I live in Canada and work in the United States, or vice versa. Where do I pay tax?
Wages are taxed first where the work is physically performed, and your country of residence allows a credit for that tax. Day counts, your employer's location, the treaty and state rules can all change the details, so do not assume the country where your employer is located decides the answer.
I am moving from Canada to the United States. When should I get tax advice?
Before you move. The treatment of your Canadian investments, the treaty election tied to your departure, PFIC elections and the treatment of a Canadian corporation are all affected by the date your US tax residency begins. Planning before the move gives you more options than fixing the structure afterward.
What happens if I have not filed my US returns since moving to Canada?
Most Americans abroad who fell behind without realizing they had to file can use the Streamlined Foreign Offshore Procedures. The program involves three years of US tax returns and six years of FBARs, with no penalties for qualifying taxpayers. Because Canadian tax is often higher than US tax, many people owe little or no US tax. Eligibility depends on your circumstances, so do not assume you qualify without a review.
Related US International Tax Resources
Work Directly With Bill Egan, CPA
International tax is the focus of Egan Tax. Clients work directly with Bill Egan, CPA on their US expatriate and international tax matters.
If you are an American living in Canada, a Canadian moving to the United States, or someone with tax obligations in both countries, schedule a consultation with Egan Tax.
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