US taxes for Americans in Canada.

US taxes for Americans in Canada: the short version

If you are a US citizen or green-card holder living in Canada, you have two tax systems to deal with. Canada taxes you as a resident on your worldwide income, and the United States taxes you as a citizen on your worldwide income, wherever you live. That applies just as much to dual citizens and to "accidental Americans", people born in the US who grew up in Canada and may never have lived south of the border.

• File a Form 1040 every year alongside your Canadian T1, even if you will owe the IRS nothing.
• Use the Foreign Tax Credit (Form 1116) for the Canadian tax you pay. Because Canadian rates are generally higher, it usually wipes out the US tax on your Canadian salary.
• Know which Canadian accounts the US respects. RRSPs and RRIFs are protected by the treaty. TFSAs, RESPs, RDSPs and FHSAs are not.
• Avoid Canadian mutual funds and ETFs in any account, or be ready for PFIC reporting on Form 8621.
• Report your Canadian accounts on the FBAR, and on Form 8938 once they pass the higher FATCA thresholds.

Filing your US return alongside your Canadian T1

Canada and the US both use the calendar year as the tax year, so your 2025 T1 and your 2025 Form 1040 cover exactly the same period. That makes the two returns easier to line up than they are for Americans in the UK or Australia. It also means the Canadian return is normally finished first, which is useful because your US return needs the final Canadian tax figures to claim the credit.

Canadian and US tax deadlines for 2025 returns

For the June 15 extension you attach a statement to your return saying you were living outside the US on the regular due date. If you need until October, file Form 4868 by June 15. In practice, many Americans in Canada file their T1 by April 30 and their US return between May and June, once the Canadian figures are final.

FEIE vs Foreign Tax Credit for Americans in Canada

There are two ways to avoid double tax on your Canadian earnings, and you can combine them.

• Foreign Earned Income Exclusion (FEIE), Form 2555. Excludes up to $130,000 of foreign earned income for 2025 ($132,900 for 2026) if you meet the bona fide residence or physical presence test. It only covers earned income such as wages and self-employment income.
• Foreign Tax Credit (FTC), Form 1116. A dollar-for-dollar credit for the Canadian federal and provincial income tax you paid on the same income. It covers every kind of income: wages, interest, dividends, rent, pensions and capital gains.

Why most Americans in Canada use the Foreign Tax Credit

Combined federal and provincial income tax rates in Canada are generally higher than US federal rates at the same income. So the credit for Canadian tax is usually larger than the US tax on the same income, and the US bill on Canadian wages comes to zero. The FTC has further advantages over the FEIE:

• Excess credits carry forward. Unused foreign tax credit can generally be carried back one year and forward ten, so it can shelter later Canadian-source income, such as a year with a large capital gain.
• It keeps the refundable child credit. Claiming the FEIE rules out the refundable Additional Child Tax Credit. With the FTC, families with children may still get part of it.
• It covers investment income. The FEIE does nothing for Canadian interest, dividends or rental income.
• It keeps IRA eligibility. Wages you exclude under the FEIE do not count as compensation for IRA contributions.

The FEIE can still be the right answer in some years, for example a year with little Canadian tax because of large RRSP deductions. If you have claimed it before and then revoke it, you generally cannot claim it again for five years without IRS consent, so the choice deserves some thought.

The treaty re-sourcing rules, briefly

The credit is limited to the US tax on income that is foreign-source. Some income that the US would normally treat as US-source, such as US dividends received by a Canadian resident, is taxed first by Canada as your country of residence. Article XXIV of the treaty contains special rules for US citizens living in Canada that can re-source income, so the credit does not fall between the two systems. These rules apply mostly to people with significant US investment income, and they need a careful Form 1116 computation.

The US–Canada tax treaty: what it does and doesn't do for citizens

The US–Canada income tax treaty is one of the more useful US treaties for citizens living abroad, but it contains a saving clause (Article XXIX). The clause lets the US tax its citizens as if the treaty did not exist, apart from a specific list of exceptions. The exceptions that matter most to Americans in Canada are:

• Article XVIII (Pensions and Annuities). This covers the RRSP/RRIF deferral and the treatment of CPP/QPP and OAS, both explained below.
• Article XXIV (Elimination of Double Taxation). This includes the foreign tax credit and the re-sourcing rules above.

Where you rely on a treaty position that overrides the Internal Revenue Code, you may need to disclose it on Form 8833. Whether a particular position needs the form depends on the position, so it is worth checking each one.

RRSPs and RRIFs: treaty-protected, but not deductible

Your RRSP and RRIF are the Canadian accounts the US treats most gently. Under Article XVIII(7) of the treaty, you can defer US tax on income and gains that build up inside the plan until money is withdrawn.

• The deferral is automatic. Since Rev. Proc. 2014-55, eligible US citizens and residents are treated as having made the election. Form 8891 is no longer required and has been withdrawn.
• No Form 3520 for the plan. The same guidance removed the separate foreign-trust reporting for RRSPs and RRIFs. They still count toward the FBAR and, where the thresholds are met, Form 8938.
• Contributions are not deductible on your US return. Your RRSP deduction lowers your Canadian tax only. Contributions you make from income that was taxed in the US generally give you US basis in the plan, which matters when you withdraw.
• Withdrawals are taxable in both countries. Canada taxes a withdrawal when you take it, and the US taxes the part above your basis in the same year. The Canadian tax is creditable.

Employer registered pension plans (RPPs) and locked-in accounts such as LIRAs raise similar questions. How they are treated depends on the plan, so bring the statements.

TFSA: tax-free in Canada, taxable in the US

The Tax-Free Savings Account is where Americans in Canada get caught most often. It is not recognised by the treaty, so for US purposes it is an ordinary taxable account:

• Income and gains are taxable on your 1040 in the year they arise, even though they are tax-free in Canada. With no Canadian tax paid, there is no foreign tax credit to offset them.
• Foreign trust reporting may apply. Many practitioners treat a TFSA as a foreign grantor trust and file Forms 3520 and 3520-A for it each year. Others treat a plain custodial TFSA as a simple account and do not. The IRS has not settled the question, and penalties for missing a required 3520 are significant, so this is a judgement to make deliberately with your preparer.
• Canadian funds inside it are PFICs. A TFSA holding Canadian mutual funds or ETFs needs a Form 8621 for each fund, on top of everything above.

RESP, RDSP and FHSA: other registered plans the treaty doesn't cover

RESP (Registered Education Savings Plan)

An RESP is not protected by the treaty. Many practitioners treat it as a foreign grantor trust owned by the subscriber (usually the parent), which means its income is taxable to the subscriber each year and Forms 3520 and 3520-A may be required. In many practitioners' view, the Canada Education Savings Grant paid into the plan is also taxable income to the subscriber, even though it can only be used for the child. Views differ on both points. If the RESP holds Canadian funds, they are PFICs as well. For some families, having a non-US spouse act as the subscriber is worth discussing before opening one.

RDSP (Registered Disability Savings Plan)

The US treatment of an RDSP is unsettled. It is not covered by the treaty, and the government grants and bonds paid into it raise the same questions as the CESG. Practitioners take different positions on whether it is a foreign trust and when its income is taxed, so it needs case-by-case advice.

FHSA (First Home Savings Account)

The First Home Savings Account, available since 2023, is not treaty-protected. The treaty predates it, and the IRS has issued no guidance recognising it. The prevailing view is that contributions are not deductible for US purposes and that its income is taxable on your 1040 like a TFSA, possibly with foreign trust reporting. As with the TFSA, Canadian funds inside it are PFICs.

Canadian mutual funds and ETFs are PFICs

For US tax purposes, almost any pooled investment fund organised outside the US is a passive foreign investment company (PFIC). That includes Canadian mutual funds, Canadian-listed ETFs and many other Canadian pooled products. Without an election, gains and larger distributions are taxed at the highest ordinary rate plus an interest charge, and each fund generally needs its own Form 8621 every year, in whichever account it is held.

The usual alternatives are individual stocks and bonds, or US-domiciled ETFs. Access to US-listed funds from Canada varies by brokerage, and a US-listed fund changes the Canadian picture too (for example, foreign-property reporting on Form T1135 and how US withholding on dividends is recovered). Plan any change with both systems in mind, and do not sell existing holdings without working out the US and Canadian tax on the sale first.

CPP, QPP and OAS: social security under the treaty

Two agreements govern Canadian social security for Americans:

• The US–Canada Totalization Agreement decides which country's social security system you pay into, so you do not contribute to both. It also lets you combine periods of coverage in each country to qualify for benefits. Employees working in Canada for a Canadian employer generally pay into CPP or QPP only. Self-employed people are generally covered by their country of residence, so a self-employed American living in Canada generally pays CPP or QPP and not US self-employment tax. You may need a certificate of coverage to show this.
• Article XVIII(5) of the tax treaty decides who taxes the benefits. It is one of the exceptions to the saving clause, so it applies to US citizens.

These are the general rules. OAS recovery tax (the Canadian clawback) and the details of each benefit can change the result, so check your own position before relying on it.

Selling your home in Canada

The Canadian principal residence exemption can make the gain on your home entirely tax-free in Canada. It does not carry over to your US return. For US purposes:

• Section 121 excludes up to $250,000 of gain, or $500,000 for most married couples filing jointly, if you owned and lived in the home for at least two of the five years before the sale. Gain above that is taxable in the US, and with no Canadian tax to credit, it may cost real US tax.
• The gain is measured in US dollars. Your purchase price is converted at the exchange rate when you bought and your sale price at the rate when you sold. If the Canadian dollar strengthened while you owned the home, you can have a larger US gain than Canadian gain, or a US gain on a sale with no gain in Canadian dollars at all.
• Currency gain on the mortgage. Paying off a Canadian-dollar mortgage can create a separate US foreign-currency gain if the Canadian dollar weakened between borrowing and repayment. That gain is taxable as ordinary income, while a currency loss on a personal mortgage is generally not deductible.

With a large gain on a long-held Toronto or Vancouver home, work through the numbers before you list the property. Foreign tax credit carryforwards from earlier years can sometimes absorb part of the US tax.

FBAR and FATCA: reporting your Canadian accounts

The FBAR (FinCEN 114) is required if the combined highest balances of all your foreign financial accounts exceeded $10,000 at any time in 2025. That includes chequing and savings accounts, GICs, brokerage accounts, and registered accounts: RRSPs, RRIFs, TFSAs, RESPs and FHSAs all count. Joint accounts with a Canadian spouse count, as can accounts you have signing authority over. See our FBAR guide or have us file it for you.

Form 8938 (FATCA) is attached to your 1040 and has much higher thresholds for people living abroad:

Canadian-controlled private corporations (CCPCs)

Many Canadian professionals and business owners operate through a corporation. For a US citizen, a CCPC you control is usually a controlled foreign corporation for US purposes, which brings:

• Form 5471 every year, a long information return with its own substantial penalties for late filing;
• possible current US tax on the company's undistributed income under the GILTI regime, renamed "net CFC tested income" for tax years beginning after 2025. Elections and high-tax exceptions can reduce the effect, but they need modelling;
• mismatches in how and when salary, dividends and retained earnings are taxed in each country.

This is specialist territory. The benefits of Canadian small-business planning can partly or fully reverse at the US level. Form 5471 preparation is priced from $450 per form. See pricing or contact us to discuss a corporation before you incorporate or restructure.

Living in Quebec: the TP-1 return

Quebec runs its own provincial income tax. If you live in Quebec, you file a TP-1 with Revenu Québec in addition to your federal T1, and you pay into the QPP rather than the CPP. On your US return, Quebec income tax counts as a foreign income tax for the foreign tax credit alongside the federal tax.

State tax: break residency in your last US state

Moving to Canada does not automatically end your obligations to the last US state you lived in. Some states, notably California, New York, Virginia, New Mexico and South Carolina, may continue to treat you as a resident if you keep a home, a driver's licence, voter registration or other clear ties. California also does not recognise the FEIE and gives no credit for Canadian income tax. Our state tax guide for expats explains how to leave cleanly. If a state return is needed, it is $75 per additional state on top of the Expat return.

Behind on US filing? Accidental Americans and the Streamlined procedures

Many Americans in Canada, especially those born in the US to Canadian parents, learn about their US obligations years late. If the failure to file was non-willful, the IRS Streamlined Foreign Offshore Procedures let you catch up by filing:

• the last 3 years of US tax returns,
• the last 6 years of FBARs, and
• a certification of non-willful conduct (Form 14653).

If you meet the non-residency test, which a long-term resident of Canada normally does, there is no penalty under the foreign procedures. Because of the foreign tax credit, many people in Canada owe little or no US tax on the catch-up returns.

Read our Streamlined guide or see our Streamlined package, priced from $1,500 for the three returns and six FBARs.

Green-card holders in Canada

A green card keeps you a US tax resident until it is formally abandoned or revoked, even if you have moved to Canada permanently. You may be able to claim Canadian residence under the treaty's tie-breaker rules. However, if you have held the card in at least 8 of the last 15 years, claiming treaty residence or giving up the card can trigger the US expatriation rules. Plan this with advice before you act.

What we prepare for Americans in Canada

Our Expat return, $599, covers a Form 1040 with the foreign tax credit or FEIE, the FBAR and Form 8938. It is prepared by IRS Enrolled Agents who work with Canadian T1 figures, RRSPs and TFSAs every season. Returns with PFICs, equity compensation or K-1s fall under Premier at $999. See the full pricing or how filing with us works.