U.S. citizens living in Canada: the Canadian side of your taxes

If you’re a U.S. citizen living in Canada, Canada taxes you the way it taxes anyone else who lives here: on the basis of your residency status. This guide covers only the Canadian side. U.S. citizens generally have U.S. filing obligations too, even while living in Canada; for those, see the IRS or a cross-border tax professional.

Are you a resident of Canada?

Under Canadian tax law, what you owe depends on whether you’re a resident or a non-resident of Canada. If you’re resident during the year, you’re taxed on your income from all sources worldwide. If you’re resident for only part of the year, that applies to the part of the year you were resident.

The CRA looks at all the facts, starting with your residential ties to Canada:

• Significant ties: a home in Canada, a spouse or common-law partner here, and dependants here.
• Secondary ties: such as a car or furniture in Canada, Canadian bank accounts or credit cards, memberships in Canadian organizations, a Canadian driver’s licence and provincial health insurance.

If you settled here and set up significant ties, you’re generally considered a resident; see your first tax return in Canada. Even without significant ties, staying in Canada for 183 days or more in a year can make you a deemed resident for the whole year. If you also have ties to a country Canada has a tax treaty with and you’re considered a resident there, you may instead be a deemed non-resident of Canada, taxed under the rules for non-residents.

Generally, your province or territory of residence on December 31 decides which provincial tax you pay. If you want the CRA’s opinion on your status, you can send Form NR74 (entering Canada) or NR73 (leaving Canada).

U.S. income and accounts on your Canadian return

As a resident, you report your U.S. income on your Canadian return, in Canadian dollars.

• Interest and dividends. Report U.S. interest and dividends from bank and brokerage accounts in full. Don’t subtract the U.S. tax withheld; you may be able to claim it as a foreign tax credit instead. U.S. dividends don’t qualify for the dividend tax credit.
• Converting. In general, use the Bank of Canada exchange rate for the day the amount arose. For a pension paid at different times during the year, use the average annual rate. Our guide to foreign income covers the other rates the CRA accepts.
• U.S. Social Security. Report the full amount, plus any U.S. Medicare premiums paid on your behalf, as pension income. Under the Canada–U.S. tax treaty, you can then deduct 15% of it as an additional deduction, or 50% if you’ve been a resident of Canada receiving U.S. Social Security continuously since before January 1, 1996. Benefits paid to your children are their income.
• Other U.S. pensions. Report the gross amount. If part of it is tax-free in Canada because of a tax treaty, you can deduct that part.
• IRAs. If you received amounts from an individual retirement arrangement (IRA), or converted an IRA to a Roth IRA during the year, the CRA asks you to contact it.

Claiming credit for U.S. tax

If you paid U.S. income tax on income you also report on your Canadian return, you may be able to claim the foreign tax credit. You need to have been a resident of Canada at some time in the year, and a tax treaty can affect whether you’re eligible.

• How much. Work out the federal credit on Form T2209; it goes on line 40500. In most cases, you claim whichever is less: the U.S. income tax you actually paid, or the Canadian tax you’d otherwise owe on your net income from the U.S.
• Provincial part. Outside Quebec, work out the provincial or territorial credit on Form T2036. In Quebec, Revenu Québec has its own credit.
• Treaty-exempt income stays out. If you deducted income as tax-free under a tax treaty (such as part of your U.S. Social Security), leave that income, and any tax withheld from it, out of the calculation.
• State and local tax. A tax paid to a state or other political subdivision can count, as long as it’s an income or profits tax.
• Only tax you really owe. Tax that is refunded or will be refunded doesn’t count. Nor does withholding above the rate the treaty allows; ask the U.S. tax authorities to refund that excess. And tax you pay voluntarily, where a treaty says it can’t be charged, doesn’t count either.
• Match the year. U.S. tax counts toward the year whose income it’s on, even if you pay it after that year ends.
• Joint U.S. returns. If you and your spouse file jointly in the U.S., each of you who is resident in Canada can include an appropriate share of the tax, generally in proportion to each person’s share of the income that was taxed.
• Convert consistently. Convert the U.S. tax at the same rate you used for the income it’s on.

Keep your proof of the U.S. tax, such as your W-2 slip, your U.S. 1040 return and your U.S. tax account transcript, in case the CRA asks to see it. If you file on paper, the CRA asks you to attach those documents, along with Form T2209, official receipts for the tax and a note explaining your calculation.

Form T1135 for U.S. property

Canadian residents file Form T1135 if the total cost of their specified foreign property was more than $100,000 at any time in the year. For a U.S. citizen, that can include money in U.S. bank and brokerage accounts, shares of U.S. corporations, and U.S. bonds. Property held in an RRSP or TFSA doesn’t count, and neither does personal-use property, such as a vacation home that you (or a related person) use mainly, meaning more than 50%, for personal use. The form is due the same day as your return. See foreign income and the T1135 for how the threshold works, and snowbirds and U.S. property if you own real estate in the U.S.

If you move back to the U.S.

You generally become an emigrant when you leave Canada to live in another country and sever your residential ties here. If you lived in that country before living in Canada and you’re going back to it, you usually become a non-resident on the date you leave.

• Departure tax. When you leave, you’re treated as having sold certain property, such as shares, at fair market value, and may have to report a capital gain even though you didn’t sell anything. If all the property you owned when you left was worth more than $25,000 in total, you also file Form T1161.
• Your last return. Enter your departure date. Report your worldwide income for the part of the year you were resident; after that, Canada taxes you only on income from Canadian sources. For Form T1135, you report only for the part of the year you were resident.
• Tell your payers. If you keep Canadian bank accounts or receive payments from Canada, tell those payers and financial institutions that you’re no longer a resident.

What to do

• Confirm your residency status, and report your worldwide income in Canadian dollars.
• Claim the foreign tax credit for U.S. income tax with Form T2209 (and Form T2036 outside Quebec).
• Check whether you need to file Form T1135.
• For your U.S. filing obligations, see the IRS or a cross-border tax professional.