The challenge is coordinating two tax systems. Your Canadian return does not replace your U.S. return, and a Canadian account’s tax benefits do not automatically determine its U.S. treatment.
Here are the main areas Americans living in Canada should have reviewed.
Do Americans living in Canada have to file U.S. taxes?
U.S. citizens are generally subject to U.S. tax on worldwide income. Whether you must file a return depends on your income, filing status, and other applicable filing rules.
Having no U.S. employer, address, or bank account does not by itself remove those obligations. Canadian citizenship also does not cancel your U.S. citizenship or its tax consequences.
The U.S.–Canada tax treaty offers important protections, but its saving clause generally preserves the United States’ right to tax its citizens, subject to specific exceptions.
IRS resource: Publication 597: Information on the United States–Canada Income Tax Treaty (opens irs.gov in a new tab).
Canadian income: what should your U.S. preparer review?
Your tax preparer needs a complete picture of your income, including:
- Canadian employment and self-employment income.
- Bank interest, dividends, and investment transactions.
- Rental income.
- Pension and retirement distributions.
- Income or interests connected to a Canadian business.
Provide your Canadian tax return, relevant tax slips, and supporting records. Amounts for your U.S. return must be determined under U.S. rules and reported in U.S. dollars; copying the final figures from your Canadian return may not produce the correct result.
IRS resource: Publication 54: Tax Guide for U.S. Citizens and Resident Aliens Abroad (opens irs.gov in a new tab).
Will you pay tax twice on the same income?
Filing in both countries does not necessarily mean paying the full tax twice.
The Foreign Tax Credit may help offset U.S. tax on income also subject to qualifying Canadian income tax. The credit has limitations and must be calculated under the applicable rules.
The Foreign Earned Income Exclusion may also be available for qualifying earned income if you meet its requirements. It does not apply to all income, including pension payments, interest, and dividends.
These provisions require coordination. You cannot claim a foreign tax credit for foreign taxes attributable to income excluded under the Foreign Earned Income Exclusion. The most suitable approach depends on your income and circumstances.
IRS resources: Foreign Tax Credit (opens irs.gov in a new tab) and Foreign earned income (opens irs.gov in a new tab).
Canadian accounts: FBAR and Form 8938 are separate requirements
Canadian accounts are foreign accounts for U.S. reporting purposes.
An FBAR, or FinCEN Form 114, is generally required when a U.S. person has a financial interest in, or signature authority over, reportable foreign financial accounts whose combined value exceeds US$10,000 at any point during the calendar year.
This is an aggregate threshold. Several smaller accounts can trigger reporting even when no individual account exceeds US$10,000.
Form 8938 is a separate requirement for specified foreign financial assets when the applicable thresholds are met. Those thresholds vary by filing status and whether you qualify as living abroad.
Filing one form does not replace the other. Your review should include checking, savings, investment, joint, and applicable retirement accounts, as well as accounts over which you have signature authority.
IRS resource: Comparison of Form 8938 and FBAR requirements (opens irs.gov in a new tab).
RRSPs and RRIFs: favorable rules still require a review
Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs) have specific U.S. rules.
Under Revenue Procedure 2014-55, eligible individuals are generally treated as having elected to defer U.S. income tax on income accumulating in qualifying Canadian retirement plans until distribution.
Eligibility matters. Your filing history, prior reporting of plan earnings, and reporting of distributions should be reviewed before assuming this relief applies.
RRSPs and RRIFs are exempt from Forms 3520 and 3520-A reporting under this guidance. However, FBAR and Form 8938 requirements may still apply.
IRS resources: Revenue Procedure 2014-55 (opens irs.gov in a new tab) and Foreign trust reporting exceptions (opens irs.gov in a new tab).
TFSAs and other Canadian savings plans need their own analysis
A Tax-Free Savings Account (TFSA) receives favorable treatment in Canada. That label does not establish a U.S. tax exemption.
Do not assume the RRSP and RRIF rules also apply to a TFSA, Registered Education Savings Plan (RESP), or another Canadian savings arrangement.
Ask your advisor to review the account’s legal structure, income, investments, and applicable reporting rules. If foreign trust rules are relevant, available exceptions should be assessed rather than assuming every account requires Forms 3520 and 3520-A.
IRS resources: U.S. citizens and residents abroad: filing requirements (opens irs.gov in a new tab) and Instructions for Form 3520 (opens irs.gov in a new tab).
CPP, QPP, and Old Age Security have special treaty treatment
The Canada Pension Plan (CPP), Quebec Pension Plan (QPP), and Old Age Security (OAS) should be distinguished from private pensions.
The IRS explains that these benefits are taxable only in Canada when received by a U.S. citizen or lawful permanent resident who is a resident of Canada. Different treatment applies when the recipient is a U.S. resident.
This makes residence an important part of retirement planning, particularly if you intend to move between the two countries.
IRS resource: International individual tax FAQs: Canadian retirement benefits (opens irs.gov in a new tab).
What if you have missed U.S. filings?
Before submitting overdue returns, have your filing history, Canadian accounts, and retirement plans reviewed together.
Depending on your circumstances, the Streamlined Foreign Offshore Procedures or another correction approach may be appropriate. Eligibility and the treatment of Canadian retirement plans require individual assessment.
IRS resource: Streamlined Foreign Offshore Procedures FAQs (opens irs.gov in a new tab).
Get organized before your next filing
Gather your Canadian returns and tax slips, account statements, retirement plan documents, contribution and withdrawal records, and prior U.S. returns and international reporting forms. Include your residency history and any planned move or major financial transaction.
Valoria Consulting coordinates U.S. expat tax preparation and international reporting support for Americans living in Canada. Our team can review your U.S. filing needs and identify matters that require coordination with your Canadian tax advisor.
Contact Valoria Consulting to discuss your U.S. tax filing history, Canadian accounts, and retirement arrangements.
This article provides general information, not individualized tax or legal advice. Treatment depends on applicable law, treaty provisions, and your circumstances.
U.S. Expat Tax Support for Americans in Canada
Discuss your U.S. tax filing history, Canadian accounts, and retirement arrangements with Valoria Consulting.