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US Citizens Living in Canada Tax Guide (Cross-Border)

the US-Canada cross-border taxation for the US citizens and the US permanent residents (the "green card" holders) living in Canada. The US citizens are taxed on the worldwide income by the US regardless of the residence (the "US citizenship-based taxation"). The US citizens living in Canada must file the dual tax returns — the US return (the Form 1040, due June 15 with the automatic extension to October 15) and the Canadian return (the T1, due April 30/June 15). The US foreign tax credits (FTCs) (the Form 1116) and the Foreign Earned Income Exclusion (FEIE) (the Form 2555, up to $126,500 for the 2024 tax year) reduce or eliminate the double taxation. The US-Canada Tax Convention (1980) provides the tie-breaker rules (Article IV) for the residency and the savings clause (Article XXIX B) that preserves the US taxing rights over the US citizens. The FATCA (the Foreign Account Tax Compliance Act) requires the US citizens to report the foreign financial accounts (the FBAR — the FinCEN Form 114, the Foreign Bank Account Report — if the aggregate balance exceeds $10,000) and the specified foreign financial assets (the Form 8938, if the assets exceed $200,000/$300,000 depending on the filing status). The PFIC rules apply to the Canadian mutual funds and the ETFs — the "Passive Foreign Investment Company" rules can cause the adverse tax treatment (the excess distributions taxed at the maximum rate plus the interest). The RRSP and the TFSA are treated differently for the US tax purposes — the RRSP is generally tax-deferred (the "elective deferral" under Article XVIII(7) of the Treaty), but the TFSA is NOT tax-free for the US tax purposes (the TFSA income is taxable in the US). The US estate tax applies to the Canadian residents with the worldwide estate value above the US estate tax exemption ($13.61 million for the 2024, indexed). The US exit tax (the "expatriation tax") applies to the US citizens who renounce the citizenship and meet the net worth or the tax liability thresholds.

Dual Filing Obligations

• US tax return (Form 1040): The US citizen must file the US return if the income exceeds the filing threshold ($13,850 for the single, 2024). The US return is due April 15 (automatic 2-month extension to June 15 without filing the Form 4868). The further extension to October 15 is available with the Form 4868.
• Canadian tax return (T1): The Canadian resident must file the T1 return by April 30 (June 15 for the self-employed). The US citizen living in Canada is the Canadian resident (the "dual resident") and must report the worldwide income to the CRA.
• Foreign Tax Credits (FTCs): The US allows the FTCs (the Form 1116) for the Canadian taxes paid on the Canadian-source income. The Canadian FTCs (the Form T2209) are available for the US taxes paid on the US-source income. The "foreign tax credit limitation" prevents the double taxation.
• Foreign Earned Income Exclusion (FEIE): The US allows up to $126,500 (2024) of the foreign earned income to be excluded from the US taxable income (the Form 2555). The FEIE is available to the US citizens who are the "bona fide residents" of Canada or the "physical presence" test (330 days outside the US).
• Treaty benefits: The US-Canada Tax Convention provides the Article XVIII(7) — the "elective deferral" for the RRSP (the US treats the RRSP as the "qualified trust" for the tax deferral). The Article XXIX B preserves the US taxing rights (the "savings clause") but provides the exceptions for the certain treaty benefits.

FATCA & FBAR

• FBAR (FinCEN Form 114): The Report of the Foreign Bank and Financial Accounts. The US citizen with the signature authority or the financial interest in the foreign financial accounts (the "foreign bank accounts" — the Canadian bank accounts, the investment accounts, the insurance policies) exceeding $10,000 at any time in the year must file the FBAR. The FBAR is filed electronically with the FinCEN (not with the IRS). The due date is April 15 (automatic extension to October 15).
• Form 8938 (Specified Foreign Financial Assets): The US citizen with the specified foreign financial assets exceeding $50,000 ($75,000 for the married filing separately) or $300,000 ($600,000 for the married filing jointly) must file the Form 8938 with the US tax return. The Form 8938 reports the Canadian bank accounts, the Canadian stocks, the Canadian mutual funds, the Canadian real estate (the "foreign financial assets").
• Form 3520 (Foreign Trusts): The US citizen with the RRSP (if the contributions exceed $10,000 in the year) must file the Form 3520 (the "Annual Return for the Foreign Trusts"). The RRSP is treated as the "grantor trust" for the US tax purposes — the Form 3520 reports the contributions, the distributions, and the trust assets.
• Form 3520-A (Foreign Trust with a US Owner): The RRSP owner must also file the Form 3520-A (the "Annual Information Return of the Foreign Trust with a US Owner"). The Form 3520-A reports the trust income, the assets, and the grantor's information.

PFIC Rules

• Passive Foreign Investment Company: The Canadian mutual funds, the Canadian ETFs, the Canadian REITs, and the Canadian hedge funds are treated as the PFICs for the US tax purposes. The PFIC rules apply to the US citizen holding the shares of the foreign corporations that earn 75%+ passive income or hold 50%+ passive assets.
• Excess distribution rules: The PFIC gains (the sale of the PFIC shares or the PFIC distributions) are taxed at the maximum US rate (37% as of 2024) plus the interest on the "deferred tax" (the "excess distribution" calculation). The PFIC is the most punitive US tax regime for the Canadian investments.
• QEF election (Qualified Electing Fund): The US citizen can elect the QEF treatment (the Form 8621) to include the PFIC's income annually (the "pass-through" treatment). The QEF election avoids the excess distribution rules but requires the PFIC's annual income statement (the "PFIC annual information statement").
• Mark-to-market election: The US citizen can elect the mark-to-market treatment for the publicly traded PFICs (the Form 8621, "Section 1296 election"). The MTM election results in the annual inclusion of the unrealized gains (and the losses, up to the prior gains).

RRSP & TFSA for US Tax Purposes

• RRSP (Article XVIII(7)): The RRSP is treated as the "qualified trust" under the US-Canada Treaty. The US citizen can elect to defer the US tax on the RRSP income until the withdrawal (the "elective deferral" — the Form 8891 for the pre-2011 years, the "deemed election" for the post-2010 years). The RRSP contributions are NOT deductible in the US (the US does not allow the RRSP deduction).
• TFSA: The TFSA is NOT recognized as the tax-free account by the US. The TFSA income (the interest, the dividends, the capital gains) is taxable in the US each year (the "global income" reporting). The TFSA is treated as the "regular taxable account" for the US tax purposes. The US citizen living in Canada should avoid the TFSA (or report the TFSA income annually).
• RESP: The RESP is treated as the "grantor trust" for the US tax purposes (the Form 3520/3520-A). The CESG (the Canada Education Savings Grant) is NOT taxable in the US (the "government grant" exclusion).

For the departure tax and the leaving Canada rules, see our Leaving Canada Guide →. For the non-resident taxation and the Part XIII withholding, see our Non-Resident Taxation Guide →.